Another question. Are services like door dash etc. included in the price of food or are they not considered in the consumer price index. I know a number of people who will complain about the price of food but don’t have a problem paying for delivery. Mostly just an observation.
Dr Doom says the Fed should double interest rate to 5%, who should we believe.
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Good article…kind of sums up the dilemma.
“I worry about a stagflationary debt crisis, because you have the worst of the '70s in terms of supply shocks, and you have the worst of the global financial crisis because of too much debt, and that combination is dangerous,” Roubini said.
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I’m thinking 15-17% mortgage rates in the next year. Raising rates to combat supply inflation is like treating a broken leg with antibiotics.
Does that mean that the labor participation rate will rise? That there will no longer be two job openings for every unemployed person? Will people start going back to work?
If so, then: good job Fed!
I clicked on the survey that the article was based on. No where did it say 70% of people are looking for extra work. This is what the survey said:
Inflation’s Impact on U.S. Workers
- 85% of Americans said that inflation has impacted their recent spending and buying habits
- 72% said inflation has impacted the way they view their job and 57% said they have sought out new or additional roles over the past year due to the rising cost of living
- Half of all respondents said they actively seek out additional work seasonally (e.g. picking up extra shifts around the holidays)
- 65% said that they foresee themselves looking for new opportunities in the coming months and into 2023 to continue to combat rising inflation
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When I read it I thought the same thing but my take is that the writer took liberty in rounding 65% to “almost 70%” because “new opportunities……to combat rising inflation” equals searching for additional work. My takeaway is a large swath of the American population is being significantly impacted by our current inflation numbers and are now forced to look for additional income to make ends meet. Raising interest rates may rectify this but the question is how quickly. In the interim, there may be fewer jobs available as employers pull back due to people reducing spending and the costs of doing business continuing to increase.
The Fed doesn’t have many tools available to address inflation and Powell appears to have the Volcker inflation reduction playbook on his nightstand. He’s in a no win situation. He’s going to be blamed if inflation remains high for not doing enough fast enough and blamed for a recession (if it occurs) even if his rate increases bring down inflation. Maybe he’ll engineer his soft landing 
despite seeming evidence to the contrary.
Not to parse words too much, but looking for new opportunities does not translate into looking for a second job or additional work.
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The labor participation rate right now is 0.8%-1.0% below where it was before covid.
Don’t just listen to signs in your local coffee shops and restaurants.
https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm
Unfortunately (for Powell and the rest of us), the Government’s fiscal policy is conflicting with the Fed’s monetary policy.
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Minneapolis Fed Chair weighs in:
"We are all united in our job to get inflation back down to 2%. And we are committed to doing what we need to do in order to make that happen. And that leads to more tightening of monetary policy in the near term.
Now, ultimately how much we need to do is not just up to us. It’s going to be determined also by the supply side of the economy and whether we get some help on the supply side."
(emphasis added)
And Larry Summers at teh same conf:
"I think the Fed allowed itself to get way behind the curve for a long time in 2021 and early ’22, and in the process, sacrificed a reasonable amount of credibility. And in that context, it was necessary to—is necessary to move very strongly and to be very clear and straightforward.
…
Of course, there’s a risk that it will be overdone. But, certainly, at the current level of interest rates of a 3% federal-funds rate when the most recent core inflation figure was 7% and the month was more than the quarter, the quarter was more than the half year, the half year was more than the year, I, certainly, don’t think it’s been overdone yet.
…
I think a hard landing is substantially more likely than a soft landing."
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It’ll soon be a great time to buy some corporate debt, assuming anybody is issuing in this environment. I guess we can make ourselves feel better by thinking back to what it must have been like in post-WWI Germany:
In 1914, before World War I, a loaf of bread in Germany cost the equivalent of 13 cents. Two years later it was 19 cents, and by 1919, after the war, that same loaf was 26 cents - doubling the prewar price in five years.
Bad, yes – but not alarming. But one year later a German loaf of bread cost $1.20. By mid-1922, it was $3.50. Just six months later, a loaf cost $700, and by the spring of 1923 it was $1,200. As of September, it cost $2 million to buy a loaf of bread. One month later, it cost $670 million, and the month after that $3 billion. Within weeks it was $100 billion, at which point the German mark completely collapsed.
The whole time the German government kept printing more money, so much so that people burned it in their fireplaces because it was cheaper than wood.
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“The core personal-consumption expenditures price index, a measure of inflation that strips out volatile food and energy costs, posted a 4.9% year-over-year increase in August, up from a 4.7% rise in July, according to Friday’s report, overshadowing a slight deceleration in overall inflation.
…
Friday’s numbers “reinforce the Fed’s worst concerns about how sticky underlying inflation has become,” said Diane Swonk, chief economist at KPMG Economics. Consumers are “spending on what they have to,” she said, adding “this is necessities, not niceties.””
https://www.wsj.com/articles/inflation-consumer-spending-personal-income-august-2022-11664484435
I checked, and Yellin is not Fed Chair. Inflation is a worldwide problem, and the U.S. Fed Chair sets the tone for everyone on monetary policy. Powell owns this debacle. I am willing to blame other Fed Board members too.
The problem is that the Fed is trying to make an inflation problem that may have actually been transitory based on bad Fed policy in 2021 into a severe recession by trying to force inflation down to an arbitrary and artificial level of 2%. The Fed needs to stop playing God with the economy, set rates at a reasonable level, unwind QE, and then let the markets work out appropriate price levels.
Apparently we don’t have a lot of pro-free market capitalists at the Fed anymore.
That is a backward looking number telling us that inflation was very high in Q3 and Q4 2021, when the Fed should have been doing something about it. It is worthless as a predictive number, and has limited value for telling us where inflation is right now.
And that is a surprise?
Fox Business likes the idea that the U.S. government is responsible for inflation. I have a finance undergrad degree, an MBA, and have spent my career in corporate finance, and I can not come up with a single reasonable explanation for why Biden caused inflation in the UK.
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An added cost of the Fed getting so far out in front of the other central banks on raising rates is that the cost of US exports have increased dramatically because the dollar has spiked. American companies are less competitive in global markets, and these short term currency spikes have a tendency to have very long tails because customers switch suppliers, and then are slow to switch back when relative currency valuations moderate.
This is just another and a long line of negative and, amazingly, unanticipated results from the Fed stumbling from one self-created crisis to another.
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