13 Comments
May 15Liked by Claudia Sahm

Does the Fed use this tool?

https://en.m.wikipedia.org/wiki/MIT_Billion_Prices_project

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Fabulous piece. Thanks Claudia. Markets and investors pine for black and white answers. After all almost everything else is tied down to the cent...account balances, financial statements, margins and balance sheets. Therefore macro reports are also expected to be accurate with every release...few acknowledge and accept that there are shades of gray that are at best directionally useful.

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Great points Claudia, across the board on monthly estimates and how we misinterpret their precision. In terms of economic numbers we live in a short term world of irrationality.

I'm reminded of Ben Graham's quip that in the short run markets are voting machines, but int the long run they are weighing machines.

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May 14·edited May 14

Claudia, you are right: "Confidence is the name of the Fed game." To put it another way, the Fed game is a con game ("Con" is short for "confidence"): You want the confidence of the suckers, or "marks" so that they don't know they're being conned until it's too late. In this case, the suckers are the young and middle-class Americans who can't afford to buy a house or car because the interest rates are so high, and the small business owners who can't afford to borrow money. Instead, investment bankers like Jerome Powell and even those, like myself, who already own a house and car and who can park money in savings accounts, reap the rewards of this policy. High interest rates help explain why 50% of college graduates return home to live with their parents. They can't afford to do otherwise. As the famous riverboat gambler, Canada Bill Jones once said, "Suckers have no business with money, anyway."

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Nice write as always.

I get the feeling that 2024 will be slow boring on inflation data and nuances. Various actors will attribute various causes to inflation which appears to stuck around 3% and Fed will observe long term trend of inflation (3 months averages) for a little longer. And Fed will keep other eye on condition of labor market. I don't see anything exciting for next few months.

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PPI certainly wasn't too great today but with that being said, I think its time for those in mainstream economics to acknowledge the feds role in adding to inflationary pressures. The time to cut rates should be now in my book.

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PPI was not great though the prices that go directly into PCE were basically a wash. It's a bigger question how we got here.

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