Tomorrow we get another CPI. If it's good, as many expect, it would be the third month of core close to the pre-Covid pace. But the Fed is so busy looking in the mirror; it might not even notice.
That most Americans are consumers AND workers as you point out - and in particular, most are workers in non-white collar non-office settings, i.e. production & nonsupervisory - is such an important concept to keep in mind! I think many economists and policymakers struggle to grasp this both for theoretical reasons and also practical ones. I’d be curious if there’s anything written about it. It does seem to be central to the success of neoliberal anti-worker politics.
Claudia i miss you from Twitter but I completely understand your reasons for quitting. This is yet another exceptional article from you highlighting the trade offs that have been made.
Great piece Claudia! The point about Walmart is thought-provoking. Almost like the federal government subsidizes WMT by allowing it to pay below-living wages, while providing social services like Medicaid so WMT doesn’t have to 🤔
I’ve been wondering for a while what a single-payer HC system in the US would look like. The WMT/Medicaid point supports the view that it would actually be good for (non-HC) businesses’ bottom lines. After all, business owners and entrepreneurs would rather focus on running their business, not choosing a HC plan for employees. And if the government is paying, that is one less line item on their income statement, boosting their bottom line. Workers would benefit from not stressing over what plans to choose and paying medical bills. And generally I think HC costs would go down: if care was provided by the government, 1) it would save on marketing and other admin costs 2) it would benefit from huge economy of scale and 3) with no ownership, there wouldn’t be shareholders demanding a return on equity capital. All of this I would think would be structurally lower cost than our current system. Something to think about...
Higher inflation has made me feel really good about my fixed rate mortgage and that joyful feeling will only get better over the next 30 years. Higher interest rates have made me feel better about safe havens like bonds, annuities and savings accounts. While I know this is penny wise and a penny foolish thinking, as long as I have a job, I can fight inflation each day.
I largely agree with you but not for all the same reasons you may advocate. The Fed has lost its inflation credibility and is desperately seeking to regain it. So much so that it is blind to the other ramifications of its policies.
While low inflation is a nice goal, stable prices are more important than the absolute level of inflation. Stable prices are key to keeping markets functioning on a reasonable basis where prices today and 6 months down the road are relatively predictable. Low or negative inflation, as you have demonstrated, can be equally pernicious in the effects they have on markets and the economy. I have been a Volcker fan and inflation hawk most of my life-- but the single minded pursuit of inflation by the fed (by itself alone) is in my mind the single most destructive act to the economy. Inflation exists today for a multitude of reasons not just monetary policy in isolation. Inflation will persist because deglobalization, Ukraine War, Covid supply disruption and a pivot away from China. The Feds raising rates will not stop inflation but it will kill growth and employment and wage gains that are sorely needed to address the excess debt problem that we have. A wiser course of action would be to set a goal of getting inflation back under 2 percent in 5-6 years. This allows inflation to partially reduce the debt burden while we have both growth and robust employment and wages gains that give us the ability to put both our fiscal and monetary houses in order on a gradual, but committed basis.
The current course we are in of raising rates with unprecedented speed and to higher levels risks destabilizing international markets and l exchange rates and risks some unexpected contagion issue when a small segment of the economy can’t react fast enough to the changes and causes panic and mayhem which destabilize the economy.
Be the turtle, not the hare, slow and steady with absolute conviction wins the race.
I never really understood what the nominal GDP targeting people are on about, but this made me think they may be right about one thing: if nominal GDP growth were much higher, high inflation would be much easier to stomach because of rising incomes.
I always get a little annoyed too when people think the central federal authority in charge of the economy is the fed. I'd love to see some analysis on the relative impacts of fiscal policy (broadly construed) on key economic outcomes so we can focus on where the important power actually lies: with state and federal legislatures and their executives.
I'd have preferred to see an explanation of why the Fed SHOULD target inflation at the rate it has chosen and the costs of positive or negative deviations from the target as a way of asking whether right now how the Fed should be setting its policy instruments.
But I have to admit to not being a typical reader and know you can't please everybody. :)
That most Americans are consumers AND workers as you point out - and in particular, most are workers in non-white collar non-office settings, i.e. production & nonsupervisory - is such an important concept to keep in mind! I think many economists and policymakers struggle to grasp this both for theoretical reasons and also practical ones. I’d be curious if there’s anything written about it. It does seem to be central to the success of neoliberal anti-worker politics.
Claudia i miss you from Twitter but I completely understand your reasons for quitting. This is yet another exceptional article from you highlighting the trade offs that have been made.
Great piece Claudia! The point about Walmart is thought-provoking. Almost like the federal government subsidizes WMT by allowing it to pay below-living wages, while providing social services like Medicaid so WMT doesn’t have to 🤔
I’ve been wondering for a while what a single-payer HC system in the US would look like. The WMT/Medicaid point supports the view that it would actually be good for (non-HC) businesses’ bottom lines. After all, business owners and entrepreneurs would rather focus on running their business, not choosing a HC plan for employees. And if the government is paying, that is one less line item on their income statement, boosting their bottom line. Workers would benefit from not stressing over what plans to choose and paying medical bills. And generally I think HC costs would go down: if care was provided by the government, 1) it would save on marketing and other admin costs 2) it would benefit from huge economy of scale and 3) with no ownership, there wouldn’t be shareholders demanding a return on equity capital. All of this I would think would be structurally lower cost than our current system. Something to think about...
Higher inflation has made me feel really good about my fixed rate mortgage and that joyful feeling will only get better over the next 30 years. Higher interest rates have made me feel better about safe havens like bonds, annuities and savings accounts. While I know this is penny wise and a penny foolish thinking, as long as I have a job, I can fight inflation each day.
I largely agree with you but not for all the same reasons you may advocate. The Fed has lost its inflation credibility and is desperately seeking to regain it. So much so that it is blind to the other ramifications of its policies.
While low inflation is a nice goal, stable prices are more important than the absolute level of inflation. Stable prices are key to keeping markets functioning on a reasonable basis where prices today and 6 months down the road are relatively predictable. Low or negative inflation, as you have demonstrated, can be equally pernicious in the effects they have on markets and the economy. I have been a Volcker fan and inflation hawk most of my life-- but the single minded pursuit of inflation by the fed (by itself alone) is in my mind the single most destructive act to the economy. Inflation exists today for a multitude of reasons not just monetary policy in isolation. Inflation will persist because deglobalization, Ukraine War, Covid supply disruption and a pivot away from China. The Feds raising rates will not stop inflation but it will kill growth and employment and wage gains that are sorely needed to address the excess debt problem that we have. A wiser course of action would be to set a goal of getting inflation back under 2 percent in 5-6 years. This allows inflation to partially reduce the debt burden while we have both growth and robust employment and wages gains that give us the ability to put both our fiscal and monetary houses in order on a gradual, but committed basis.
The current course we are in of raising rates with unprecedented speed and to higher levels risks destabilizing international markets and l exchange rates and risks some unexpected contagion issue when a small segment of the economy can’t react fast enough to the changes and causes panic and mayhem which destabilize the economy.
Be the turtle, not the hare, slow and steady with absolute conviction wins the race.
I never really understood what the nominal GDP targeting people are on about, but this made me think they may be right about one thing: if nominal GDP growth were much higher, high inflation would be much easier to stomach because of rising incomes.
I always get a little annoyed too when people think the central federal authority in charge of the economy is the fed. I'd love to see some analysis on the relative impacts of fiscal policy (broadly construed) on key economic outcomes so we can focus on where the important power actually lies: with state and federal legislatures and their executives.
Mr summers at it again!! From Davos, of course!! Please retort!
What about us retired, fixed income people?
I'd have preferred to see an explanation of why the Fed SHOULD target inflation at the rate it has chosen and the costs of positive or negative deviations from the target as a way of asking whether right now how the Fed should be setting its policy instruments.
But I have to admit to not being a typical reader and know you can't please everybody. :)