Inflation in the United States and Europe differs and is intertwined. The Fed's aggressive interest rate increases this year to fight inflation have consequences at home and abroad.
I don't know if it's a knowledge problem; I think it's a political problem. Surely in their heart of hearts they know this is true; they just can't say it because the narrative is out there that fighting inflation is always and everywhere the fed's job.
heck, maybe even some in congress and the west wing understand this. but they passed the chips act and inflation reduction act; it'd be a big stretch to try and pull out _more_ fiscal responses. the approach will only change if the public and media narrative changes opening up the political breathing room to tackle the problem differently. but, that would require subtlety in messaging, which is not really something we've figured out how to do yet. maybe if we get claudia more airtime on bloomberg and cnbc?
Thank you for a very insightful summary of rather complex data. The reality of countries, under certain conditions, partially exporting their inflation was particularly thought provoking!
Are you able to provide URLs to the papers which describe how sources of inflation can be distinguished between supply-driven, demand-driven and ambiguous? It would seem that if we can make those distinctions, then we have the beginnings of new policy tools.
the methodology that adam shapiro used is pretty straightforward. i have no economic training and even i could understand it. kinda elegant in its simplicity.
Thank you. When you say that a finger should be wagged at the rich, given that there is no such policy tool, are you implying that the Fed is thus going to have to hike much more than what is priced in/expected yet?
The rich are consuming and they have the largest excess savings, so their demand is interest insensitive.
Just wondering whether that's your thought and you stopped short of saying it, making your recession prediction even more inexorable.
I don't know if this comment section is the right place for this, but I wanted to share an idea for fighting inflation from the supply side of the equation, and get your thoughts as to whether this approach sounds like it has potential, or if I'm missing something.
The idea is to create "Federal Businesses" that serve as guaranteed competitors in the market, whose sole purpose is to create supply to influence price stability. They would be funded by the federal government via money creation (from the US Treasury, since the US dollar is fiat) which would ensure that operations of the Federal Business would continue in the face of fluctuating market conditions.
Since the Federal Business operates from government funding and does not require profits to stay afloat, they have no incentive to raise their prices. With such a business competing in the market that doesn't raise their prices, can't go out of business, and can't be bought out, any other businesses competing with it will not want to raise their prices, because if they do they risk losing business to their Federal Business competitor. With one competitor refusing to raise prices and the rest not wanting to due to competition, you have created price stability and halted inflation in the market.
The interesting thing with this approach is that, while I would consider federally-funded businesses to be a left-leaning solution, its strangely palatable from a right-wing perspective too. This strategy is implemented without increasing taxes, without increasing government debt (no bond sales necessary), and doesn't require any sweeping market mandates from the government... prices are held in place using market competition.
Excellent presentation. I wish the Federal Reserve would open their eyes/ears.
I don't know if it's a knowledge problem; I think it's a political problem. Surely in their heart of hearts they know this is true; they just can't say it because the narrative is out there that fighting inflation is always and everywhere the fed's job.
heck, maybe even some in congress and the west wing understand this. but they passed the chips act and inflation reduction act; it'd be a big stretch to try and pull out _more_ fiscal responses. the approach will only change if the public and media narrative changes opening up the political breathing room to tackle the problem differently. but, that would require subtlety in messaging, which is not really something we've figured out how to do yet. maybe if we get claudia more airtime on bloomberg and cnbc?
Thank you for a very insightful summary of rather complex data. The reality of countries, under certain conditions, partially exporting their inflation was particularly thought provoking!
I also appreciate your discussion of "the poor do not cause inflation." It would be good to develop that into a separate post.
This post touches on the argument some. https://stayathomemacro.substack.com/p/who-is-inflation-hurting-and-what
Are you able to provide URLs to the papers which describe how sources of inflation can be distinguished between supply-driven, demand-driven and ambiguous? It would seem that if we can make those distinctions, then we have the beginnings of new policy tools.
I added references with links to the post.
the methodology that adam shapiro used is pretty straightforward. i have no economic training and even i could understand it. kinda elegant in its simplicity.
check out the updated dash on the sf fed's website extending that viz over time: https://www.frbsf.org/economic-research/indicators-data/supply-and-demand-driven-pce-inflation/
Great presentation
Thank you. When you say that a finger should be wagged at the rich, given that there is no such policy tool, are you implying that the Fed is thus going to have to hike much more than what is priced in/expected yet?
The rich are consuming and they have the largest excess savings, so their demand is interest insensitive.
Just wondering whether that's your thought and you stopped short of saying it, making your recession prediction even more inexorable.
Claudia and fellow community members,
I don't know if this comment section is the right place for this, but I wanted to share an idea for fighting inflation from the supply side of the equation, and get your thoughts as to whether this approach sounds like it has potential, or if I'm missing something.
The idea is to create "Federal Businesses" that serve as guaranteed competitors in the market, whose sole purpose is to create supply to influence price stability. They would be funded by the federal government via money creation (from the US Treasury, since the US dollar is fiat) which would ensure that operations of the Federal Business would continue in the face of fluctuating market conditions.
Since the Federal Business operates from government funding and does not require profits to stay afloat, they have no incentive to raise their prices. With such a business competing in the market that doesn't raise their prices, can't go out of business, and can't be bought out, any other businesses competing with it will not want to raise their prices, because if they do they risk losing business to their Federal Business competitor. With one competitor refusing to raise prices and the rest not wanting to due to competition, you have created price stability and halted inflation in the market.
The interesting thing with this approach is that, while I would consider federally-funded businesses to be a left-leaning solution, its strangely palatable from a right-wing perspective too. This strategy is implemented without increasing taxes, without increasing government debt (no bond sales necessary), and doesn't require any sweeping market mandates from the government... prices are held in place using market competition.
Let me know what you all think!