This is fantastic!! Great analysis and invaluable insight/perspective. More like this in 2024. Thanks so much for all you do. Keep it up!!! Your voice is needed in times of confusion and uncertainty.
At the heart of your comments is the unanswered question of why this inflation was addressed by the Fed and not some other political/economic institution. The Fed can make investment capital more expensive---limit borrowing for investment and speculation, and it can have an effect on consumer credit based purchases. These are not immediate effects on the business cycle but they are here now after months of rate increases. By that I mean there is an interest rate threshold beyond which the consumer will not buy a new car or a new home and it takes time for those recessionary decisions to ripple through the economy.
Since investment decisions drive growth and growth drives profits one would expect a recession to happen when businesses cut back on investment and cut their labor costs. Here we have to look at the "Made In China " label on most manufactured goods. There have been employment cutbacks but in China where most consumer goods are produced not here in the US.
So why hasn't unemployment increased in the US? Here no one seems to want to look at demographics. The impact of baby boomers leaving the work force seems to be ignored. Does it account for the low unemployment numbers.
As to Volker which I lived through, there is a radical difference between interest rates at 19% and 5.5%. The former crushes demand. The later may produce consumer adjustments in demand but when businesses cut back on production today it is the Chinese factories laying off workers not American ones.
So I think we should be looking at where the absence of free capital (I mean we had negative interest rates alright) does to finance capital and the economy. The 2007-2008 economic collapse was due to the vast amount of unrestrained and unregulated speculative investments. We now have all those subsequent years of low interest rate built up debt and little of productive value to show for it. (Semiconductors are one thing but the hype involved in self driving cars, service industry apps etc. is stock market driven speculation not productive use of capital)
If the Fed crosses the Rubicon of interest rates (is it 8 or 9 or 11%???) then the Volker effect might manifest itself this time not at first with a crushing of demand but a crushing of investment. And what does that do to the economy!
One last word about the pathetic attitude of economists like Larry Summers et al. Corporations are responsible for raising prices. It is obvious that supply was shut down during Covid. Demand wasn't the culprit here. The economics profession doesn't want to look at profit driven inflation, nor does it want to look at monopoly pricing power. I don't want to make a big deal out of this but the fact is that there have been many instances when the political system responded to price increases that would generate inflation by calling the executives into the White House. This was done by Truman and other Presidents, all to limit profit driven inflation and its spread if not nippedin the bud. It isn't done anymore. Had it been done when supply chain shortages first appeared then piggyback price increases might not have driven up inflation to the levels we have had.
Although Claudia doesn't want to get into politics, it is obvious to me that economists today are cowards with Summers leading them by the nose. Not so post WW2 when similar supply driven inflation appeared.
Should we have a hard landing induced by an unanticipated credit mishap, Larry will party on at the Artificial Intelligence startup where he is on the BOD but the public will discount the value of macro-economists to zero.
What are your thoughts on political pressure on the FOMC to cut early next year and to cut more than they likely should? I read many opinions on this but am never sure about how real the political pressure is on the committee. As an ex-insider, any insight? Thanks, Claudia.
My spectrum has me copy editing everything all the time, and it jumps out at me like a sore thumb, but I certainly did not mean to ruin your night, so my apologies for that. A bunch of us do it to Nate Silver all the time, but it's honestly intended to be good-natured ribbing about him needing a copy editor (which we've offered to do for free).
My wife feels the same way you do about sending out typos/mistakes, so I understand. They are no big deal in the long run, don't let them ruin your day in the future if you can help it. Also, I don't know how he does it, but Nate edits the page after the fact, without deleting it and resending it, so you might be able to do the same thing.
No apologies necessary whatsoever. KEEP UP THE GREAT WORK! It’s nice to see Paul Krugman citing you in his column this year. Maybe he’ll break his habit of citing the world’s worst applied economist of his generation (read: Larry Summers).
I am more worried than you that June is too late to start cutting. I think a small cut now with no promise of more w/o more good inflation news would be wise.
"Forward guidance" (about future Fed actions) is a terrible idea. If the Fed wants to share its speculation about future inflation, employment or whatever and the instrument settings these speculations are based on, great! But that is not "guidance;" New information will mean a new configuration of expected policy settings and outcomes.
thank you for this great video! no worries with the resends ofc
Thank you for sharing your insights! I hope you'll have a great 2024.
This is fantastic!! Great analysis and invaluable insight/perspective. More like this in 2024. Thanks so much for all you do. Keep it up!!! Your voice is needed in times of confusion and uncertainty.
How does a soft landing benefit workerbees/pissants?
At the heart of your comments is the unanswered question of why this inflation was addressed by the Fed and not some other political/economic institution. The Fed can make investment capital more expensive---limit borrowing for investment and speculation, and it can have an effect on consumer credit based purchases. These are not immediate effects on the business cycle but they are here now after months of rate increases. By that I mean there is an interest rate threshold beyond which the consumer will not buy a new car or a new home and it takes time for those recessionary decisions to ripple through the economy.
Since investment decisions drive growth and growth drives profits one would expect a recession to happen when businesses cut back on investment and cut their labor costs. Here we have to look at the "Made In China " label on most manufactured goods. There have been employment cutbacks but in China where most consumer goods are produced not here in the US.
So why hasn't unemployment increased in the US? Here no one seems to want to look at demographics. The impact of baby boomers leaving the work force seems to be ignored. Does it account for the low unemployment numbers.
As to Volker which I lived through, there is a radical difference between interest rates at 19% and 5.5%. The former crushes demand. The later may produce consumer adjustments in demand but when businesses cut back on production today it is the Chinese factories laying off workers not American ones.
So I think we should be looking at where the absence of free capital (I mean we had negative interest rates alright) does to finance capital and the economy. The 2007-2008 economic collapse was due to the vast amount of unrestrained and unregulated speculative investments. We now have all those subsequent years of low interest rate built up debt and little of productive value to show for it. (Semiconductors are one thing but the hype involved in self driving cars, service industry apps etc. is stock market driven speculation not productive use of capital)
If the Fed crosses the Rubicon of interest rates (is it 8 or 9 or 11%???) then the Volker effect might manifest itself this time not at first with a crushing of demand but a crushing of investment. And what does that do to the economy!
One last word about the pathetic attitude of economists like Larry Summers et al. Corporations are responsible for raising prices. It is obvious that supply was shut down during Covid. Demand wasn't the culprit here. The economics profession doesn't want to look at profit driven inflation, nor does it want to look at monopoly pricing power. I don't want to make a big deal out of this but the fact is that there have been many instances when the political system responded to price increases that would generate inflation by calling the executives into the White House. This was done by Truman and other Presidents, all to limit profit driven inflation and its spread if not nippedin the bud. It isn't done anymore. Had it been done when supply chain shortages first appeared then piggyback price increases might not have driven up inflation to the levels we have had.
Although Claudia doesn't want to get into politics, it is obvious to me that economists today are cowards with Summers leading them by the nose. Not so post WW2 when similar supply driven inflation appeared.
Should we have a hard landing induced by an unanticipated credit mishap, Larry will party on at the Artificial Intelligence startup where he is on the BOD but the public will discount the value of macro-economists to zero.
What Germany got was Hitler.
What are your thoughts on political pressure on the FOMC to cut early next year and to cut more than they likely should? I read many opinions on this but am never sure about how real the political pressure is on the committee. As an ex-insider, any insight? Thanks, Claudia.
Aw man, now I feel like a sh*theel!
My spectrum has me copy editing everything all the time, and it jumps out at me like a sore thumb, but I certainly did not mean to ruin your night, so my apologies for that. A bunch of us do it to Nate Silver all the time, but it's honestly intended to be good-natured ribbing about him needing a copy editor (which we've offered to do for free).
My wife feels the same way you do about sending out typos/mistakes, so I understand. They are no big deal in the long run, don't let them ruin your day in the future if you can help it. Also, I don't know how he does it, but Nate edits the page after the fact, without deleting it and resending it, so you might be able to do the same thing.
Take care, and I hope tomorrow is a better day.
Most excellent video, Garth!
No apologies necessary whatsoever. KEEP UP THE GREAT WORK! It’s nice to see Paul Krugman citing you in his column this year. Maybe he’ll break his habit of citing the world’s worst applied economist of his generation (read: Larry Summers).
I feel like we need a dot plot for all the banks interest rates predictions for 2024
I am more worried than you that June is too late to start cutting. I think a small cut now with no promise of more w/o more good inflation news would be wise.
"Forward guidance" (about future Fed actions) is a terrible idea. If the Fed wants to share its speculation about future inflation, employment or whatever and the instrument settings these speculations are based on, great! But that is not "guidance;" New information will mean a new configuration of expected policy settings and outcomes.