Sahm points out something important that the Fed has been navigating supply shock after supply shock with the same blunt tool. But that raises a harder question. If rate hikes can't fix broken supply chains or oil embargoes, and the cost is always borne by workers through unemployment and tighter credit, why is Congress still not part of this conversation? The Fed gets called in because fiscal policy won't show up, not because monetary policy is the right answer.
Because Congress is dominated by the GOP right now, and they're not the least bit concerned with anything beyond hanging on to their positions of power. And their billionaire patrons still get to make out like bandits.
Yes, I agree. However, over decades both parties ignored their responsibilities to manage supply-side issues and assumed the Fed had the tools. For example, Biden's COVID $1.9 trillion American Rescue Plan (2021) was primarily demand-side stimulus, not supply-side. Before and during the inflation spikes, Congress did talk some about the supply constraints, but did little.
Love and value your insight, as ALWAYS, Claudia. I read every word. Your point about Powell adding humanity into the policy management equation is spot on.
EMPATHY - an emotion totally lacking in this regime.
Thanks for unraveling what data the FED considers in its decision making about interest rates. Having experienced FED Policy at the micro level over 60 years my concerns are centered on housing and transport affordability for the under 40 cohort and I await the emergence of a Grand Plan to address those issues. Hard to achieve in a war costs and global tax cheating and related criminal enterprises world.
Your framing of Powell navigating a supply shock with limited tools really resonates. What strikes me is how the unanimous Bank of England vote adds to the sense that every major central bank is reading from the same constrained playbook right now. I covered this global coordinated hawkish hold in today's piece: https://thisweekineconomics.substack.com/p/global-central-banks-lock-into-hawkish
Your framing of Powell navigating a supply shock with limited tools really resonates. What strikes me is how the unanimous Bank of England vote adds to the sense that every major central bank is reading from the same constrained playbook right now. I covered this global coordinated hawkish hold in today's piece: https://thisweekineconomics.substack.com/p/global-central-banks-lock-into-hawkish
I must confess I've developed considerable admiration for Powell. When Trump first nominated him, I viewed that as a red flag in and of itself, but Powell proved to take a calm, steady, even keeled approach, even in the face of intense pressure from Trump. I hope he stays on as a Fed Governor after his term as chair is up. No doubt Trump intends to replace him with a rubber stamp. All the more reason to have as many level headed Governors as possible.
One thing I don’t understand is how the Fed can talk about all the risks to the economy--and leave the unemployment rate essentially unchanged and even a tad lower than today’s 4.4% through 2028. Leave aside the war and oil shocks, what about job losses to AI. or is the central bank not looking at the same real economy that I’m seeing?
Waller’s discussion at the end points to a key aspect of supply shocks: without demand accommodation, these cause only short-lived inflation. Considering the very sluggish labor market faced with steep downside uncertainty due to AI, I think the rate should have been cut.
Sahm points out something important that the Fed has been navigating supply shock after supply shock with the same blunt tool. But that raises a harder question. If rate hikes can't fix broken supply chains or oil embargoes, and the cost is always borne by workers through unemployment and tighter credit, why is Congress still not part of this conversation? The Fed gets called in because fiscal policy won't show up, not because monetary policy is the right answer.
Because Congress is dominated by the GOP right now, and they're not the least bit concerned with anything beyond hanging on to their positions of power. And their billionaire patrons still get to make out like bandits.
Yes, I agree. However, over decades both parties ignored their responsibilities to manage supply-side issues and assumed the Fed had the tools. For example, Biden's COVID $1.9 trillion American Rescue Plan (2021) was primarily demand-side stimulus, not supply-side. Before and during the inflation spikes, Congress did talk some about the supply constraints, but did little.
Love and value your insight, as ALWAYS, Claudia. I read every word. Your point about Powell adding humanity into the policy management equation is spot on.
EMPATHY - an emotion totally lacking in this regime.
https://www.youtube.com/watch?v=dQHUAJTZqF0&list=RDdQHUAJTZqF0&start_radio=1
Thanks for unraveling what data the FED considers in its decision making about interest rates. Having experienced FED Policy at the micro level over 60 years my concerns are centered on housing and transport affordability for the under 40 cohort and I await the emergence of a Grand Plan to address those issues. Hard to achieve in a war costs and global tax cheating and related criminal enterprises world.
Your framing of Powell navigating a supply shock with limited tools really resonates. What strikes me is how the unanimous Bank of England vote adds to the sense that every major central bank is reading from the same constrained playbook right now. I covered this global coordinated hawkish hold in today's piece: https://thisweekineconomics.substack.com/p/global-central-banks-lock-into-hawkish
Your framing of Powell navigating a supply shock with limited tools really resonates. What strikes me is how the unanimous Bank of England vote adds to the sense that every major central bank is reading from the same constrained playbook right now. I covered this global coordinated hawkish hold in today's piece: https://thisweekineconomics.substack.com/p/global-central-banks-lock-into-hawkish
I must confess I've developed considerable admiration for Powell. When Trump first nominated him, I viewed that as a red flag in and of itself, but Powell proved to take a calm, steady, even keeled approach, even in the face of intense pressure from Trump. I hope he stays on as a Fed Governor after his term as chair is up. No doubt Trump intends to replace him with a rubber stamp. All the more reason to have as many level headed Governors as possible.
One thing I don’t understand is how the Fed can talk about all the risks to the economy--and leave the unemployment rate essentially unchanged and even a tad lower than today’s 4.4% through 2028. Leave aside the war and oil shocks, what about job losses to AI. or is the central bank not looking at the same real economy that I’m seeing?
Waller’s discussion at the end points to a key aspect of supply shocks: without demand accommodation, these cause only short-lived inflation. Considering the very sluggish labor market faced with steep downside uncertainty due to AI, I think the rate should have been cut.
It is hard to close the Strait of Hormuz again if it is already closed.
On the other hand, a dominant cartel like OPEC can raise prices whenever they want, and of course the 70s added the Iranian revolution.
But of course the worst case scenario can get pretty severe. For example there is plenty of Saudi oil that doesn't go through the Strait.