As usual a measured and thoughtful insight into macro-economic dynamics. Methinks though, you make an error by not considering the effects of the new administration's policy and program proposals beyond tariffs. This unique panoply of possible horrors could easily be a black swan event. There are many disruptions to basic core governmental functions from possible loss of epidemic monitoring, to stopping the support for quality public education, to cutting Medicaid, to curtailing weather forecasting, to hampering drug approval, to cutting taxes and exploding the national debt (printing money) and finally challenging the commercial stability based on the rule of law. Surely these factors will have an outsized impact on the national economy in the near future.
In addition, his "plan" to "control" inflation is mass unemployment. And then there's his cryptocurrency based monetary "policies". Passengers please fasten your seatbelts, we're approaching rough turbulence just up ahead.
Tariffs generally have a one-time impact. When Trump imposed tariffs on some goods or countries, it would effect to relative prices. Depending on market power, this price change may be passed on to consumers, but it occurs only once. The effect persists until the same period in the following year due to the base effect. then fades away, I think it is not inflation
Trumpian uncertainty will create instability in business decisions. This will reflect in pricing policy as well. Apart from tariffs, the overall climate of governance and policies will affect business decisions. Labor markets and fear of deportations may affect wages in agriculture and construction sectors. And if Trump regime lives up to our pessimistic expectation, the economic sentiments will take a nose dive. At that point Powell's job will become more difficult. Trump will pressure the Fed to cut rates while Fed wanna work on basis of actual data.
Inflation is indeed a topic of concern, affecting our cost of living and purchasing power. But perhaps we can look at it in a positive light - moderate inflation often means that the economy is growing, businesses are developing, and markets are vibrant.
At the same time, there are practical steps we can take to combat inflation, such as setting a sensible budget and seeking higher returns on our investments. By remaining optimistic, keeping an eye on our personal finances, and being prepared to adapt to change, we will be better able to cope with the changing economic environment.
This is a very helpful piece, much appreciated. I would next like to hear what the expected effects of the coming tax cut, virtually certain to be enacted, are likely to be Tax cuts and deficit increases in a tight economy should be inflationary, per simple Keynes. Much of the cut will be tax extensions on the personal income tax already in place, with further tax cuts for the rich and corporations, likely to boost asset prices unsustainably. The tax cut would seem to be exactly the wrong policy at the wrong time-, no soft landing this next time. That's my view anyway, would like to hear yours,.
I think growth will be the concern down the line more so than inflation mainly because this administration is laying off government employees which will cause unemployment to go up. Cutting spending and layoffs will hurt growth and again have negative effects on unemployment which will be their way of dealing with inflation.
2.8% annual inflation is the Cleveland Fed’s latest "nowcast" for the next CPI release. Good inflation news could be repeated the following month as a high monthly inflation reading for March 2024 drops out of the annual calculation released in April.
Cue the trumpets. President Trump will be loud and proud claiming credit when CPI inflation falls back under 3%.
Cleveland Fed nowcasting a small decline in core CPI inflation and steady PCE core inflation. I should say that I am often surprised when the actual inflation number differs from the nowcast as happened last week. I am guessing that shelter costs are hard to guesstimate even just month-to-month.
What you write all makes sense. But if the economy and employment continues to slow, inflation will slow also. Powell warned that progress would be bumpy. That looks like a pretty good forecast. It is particularly interesting to me that the reaction function of corporations has been to retain employees but that overall labor market turnover has slowed down. Meaning new hiring and quits are down. If you are unemployed it is increasingly difficult to get a new job comparable to your old one. A good bet is that this will lead to precautionary spending cuts by consumers down the road, leading to a further slowing.
As usual a measured and thoughtful insight into macro-economic dynamics. Methinks though, you make an error by not considering the effects of the new administration's policy and program proposals beyond tariffs. This unique panoply of possible horrors could easily be a black swan event. There are many disruptions to basic core governmental functions from possible loss of epidemic monitoring, to stopping the support for quality public education, to cutting Medicaid, to curtailing weather forecasting, to hampering drug approval, to cutting taxes and exploding the national debt (printing money) and finally challenging the commercial stability based on the rule of law. Surely these factors will have an outsized impact on the national economy in the near future.
In addition, his "plan" to "control" inflation is mass unemployment. And then there's his cryptocurrency based monetary "policies". Passengers please fasten your seatbelts, we're approaching rough turbulence just up ahead.
Also federal government firings and cutbacks are not going to help...
I will have to spend more on food and utilities but I’m not buying anything that’s unnecessary.
Untrickeled! I love it. It would've been even better if you made "Untrickeled on", but that's just my opinion. It's still great.
Tariffs generally have a one-time impact. When Trump imposed tariffs on some goods or countries, it would effect to relative prices. Depending on market power, this price change may be passed on to consumers, but it occurs only once. The effect persists until the same period in the following year due to the base effect. then fades away, I think it is not inflation
Trumpian uncertainty will create instability in business decisions. This will reflect in pricing policy as well. Apart from tariffs, the overall climate of governance and policies will affect business decisions. Labor markets and fear of deportations may affect wages in agriculture and construction sectors. And if Trump regime lives up to our pessimistic expectation, the economic sentiments will take a nose dive. At that point Powell's job will become more difficult. Trump will pressure the Fed to cut rates while Fed wanna work on basis of actual data.
The Fed’s multivariate core trend for PCE was 2.31% in Dec 2024. That’s encouraging for disinflation.
Inflation is indeed a topic of concern, affecting our cost of living and purchasing power. But perhaps we can look at it in a positive light - moderate inflation often means that the economy is growing, businesses are developing, and markets are vibrant.
At the same time, there are practical steps we can take to combat inflation, such as setting a sensible budget and seeking higher returns on our investments. By remaining optimistic, keeping an eye on our personal finances, and being prepared to adapt to change, we will be better able to cope with the changing economic environment.
"Businesses have pricing power."
Doesn't this imply that they will absorb some of the tariffs?
My prior is that this is a small issue or you meant pricing power differently--I'm not really a macro person.
IMPEACH TRUMP NOW!
I guess this means that stores won't be giving away eggs anytime soon? :-)
This is a very helpful piece, much appreciated. I would next like to hear what the expected effects of the coming tax cut, virtually certain to be enacted, are likely to be Tax cuts and deficit increases in a tight economy should be inflationary, per simple Keynes. Much of the cut will be tax extensions on the personal income tax already in place, with further tax cuts for the rich and corporations, likely to boost asset prices unsustainably. The tax cut would seem to be exactly the wrong policy at the wrong time-, no soft landing this next time. That's my view anyway, would like to hear yours,.
I think growth will be the concern down the line more so than inflation mainly because this administration is laying off government employees which will cause unemployment to go up. Cutting spending and layoffs will hurt growth and again have negative effects on unemployment which will be their way of dealing with inflation.
2.8% annual inflation is the Cleveland Fed’s latest "nowcast" for the next CPI release. Good inflation news could be repeated the following month as a high monthly inflation reading for March 2024 drops out of the annual calculation released in April.
Cue the trumpets. President Trump will be loud and proud claiming credit when CPI inflation falls back under 3%.
Cleveland Fed nowcasting a small decline in core CPI inflation and steady PCE core inflation. I should say that I am often surprised when the actual inflation number differs from the nowcast as happened last week. I am guessing that shelter costs are hard to guesstimate even just month-to-month.
What you write all makes sense. But if the economy and employment continues to slow, inflation will slow also. Powell warned that progress would be bumpy. That looks like a pretty good forecast. It is particularly interesting to me that the reaction function of corporations has been to retain employees but that overall labor market turnover has slowed down. Meaning new hiring and quits are down. If you are unemployed it is increasingly difficult to get a new job comparable to your old one. A good bet is that this will lead to precautionary spending cuts by consumers down the road, leading to a further slowing.