I’m no expert on inflation, but can someone comment on the fact that many of the numbers in the last couple of years have been measured during the pandemic. So is it “fair” to compare them to normal times?
From April 2021,
“That said, in the next several months we expect measured inflation to increase somewhat, primarily due to three different temporary factors: base effects, supply chain disruptions, and pent-up demand, especially for services. We expect these three factors will likely be transitory, and that their impact should fade over time as the economy recovers from the pandemic…”
“Over the longer-term, a key determinant of lasting price pressures is inflation expectations. When businesses, for example, expect long-run prices to stay around the Federal Reserve’s 2 percent inflation target, they may be less likely to adjust prices and wages due to the types of temporary factors discussed earlier. If, however, inflationary expectations become untethered from that target, prices may rise in a more lasting manner. This sort of inflationary, or “overheating,” spiral might then lead the central bank to raise interest rates quickly which then significantly slows the economy and increases unemployment. Economists refer to this scenario as “a hard landing,” so inflationary pressures are risks that must be carefully monitored.”
I think the war in Ukraine was unexpected at the time of these White House remarks.
“CONCLUSIONS
We think the likeliest outlook over the next several months is for inflation to rise modestly due to the three temporary factors we discuss above, and to fade back to a lower pace thereafter as actual inflation begins to run more in line with longer-run expectations. Such a transitory rise in inflation would be consistent with some prior episodes in American history coming out of a pandemic or when the labor market has quickly shifted, such as demobilization from wars. We will, however, carefully monitor both actual price changes and inflation expectations for any signs of unexpected price pressures that might arise as America leaves the pandemic behind and enters the next economic expansion.
“
Here is paper from Sept 2022 describing why views in April 2021 about pandemic inflation being transitory were not correct.
“Fed policymakers, as well as most economists (including the paper’s authors), had expected that the upturn in inflation that began in March 2021 would prove transitory. The paper cited three reasons why those expectations proved to be wrong: first, unforeseeable events such as Russia’s invasion of Ukraine and the persistence of pandemic supply-chain disruptions; second, failure to account for the pass-through of specific price shocks (such as to energy and auto prices) into the core, or underlying, rate of inflation; and, third a focus on the unemployment rate (which has only recently fallen back to pre-pandemic levels) as an indicator of labor market tightness rather than the very high ratio of job vacancies to unemployed workers (V/U”
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You are naive if you think she has no influence on Powell, especially when he’s to be reappointed.
If the rumors about Credit Suisse experiencing a “Lehman moment” this weekend are true, and we are heading for a 2008-like liquidity crisis, then interest rate hikes might have to be paused pretty soon.
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Mmmmm….
…. for those seeking a bit of insight on the economy’s trajectory from an unlikely source 
“Good morning. Are we about to enter an economic crisis? Could be. But don’t look at unemployment, interest rate hikes, or the housing market for clues. A better indicator is whether the Philadelphia Phillies win the World Series.
As the baseball historians on the Brew’s social media team found, over the past 100 years the surest sign of a financial crisis has been a Philly-based baseball team winning the World Series. It happened in 1929, 1930, 1980, and 2008. On Monday night, the Phillies clinched a playoff spot for the upcoming postseason.
They must be stopped. We’d ask the Mets for help, but that’s definitely not going to happen.”
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But the Athletics also won in 1910, 1911 and 1913, and the Phillies don’t have the pitching for a long series.
@quin85, I am a bit confused. Why do you think corporate debt will soon be a good buy? I normally want to be a debtor and not a creditor in an environment with rising interest rates.
Wouldn’t I want to buy corporate debt when interest rates were peaking? If inflation is going to increase rapidly, if that is what your historical example is meant to suggest, then interest rates would be rising and not falling.
Are you suggesting we are nearing the peak? What am I missing?
Corporate debt is a poor choice if the purpose is to bet on the direction of interest rates, because the value of corporate debt depends not only on interest rates but also on its credit prospect. Treasuries are much better instruments to use if you have a view on the direction of interest rates. If you like corporate debt because of its credit profile, there’re purer and better ways to take the credit risk/reward without getting caught up by interest rates going in the direction you don’t like.
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Considering I’m a senior in high school (sorry for breaking into the parents forum) I have no clue about actually paying taxes and “adulting” when it comes to money, but I’m scared of going out into the real world in a few months with the state of the economy. I don’t want to be a poor college kid working a part time job when a recession happens.
Been there, done that. Your best defense is marketable skill. Work hard and have a teachable attitude. It’s never a guarantee, but it gives you a real advantage if/when layoffs happen. And adapt when necessary. I worked part-time while going to school. It’s not as difficult as it seems, but you have to prioritize your time.
As far as money, budgeting isn’t a difficult skill to learn. You get better at it over time. Turbo Tax works great for tax season. Just do the best you can and live within your means. Life is all on-the-job training. You’ll be fine. That’s the secret to “adulting.”
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This is disturbing since corporate profits are at record highs.
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Typical of supply chain issues. Factories and warehouses can’t sell in high volume, so they have to make up for it by charging higher prices. Of course, they will charge whatever price they can get away with.
Some companies have been warning, what record highs?
You will be a poor college kid working part-time like many of us (most certainly me) were. Nothing wrong with it. Just hang in there and learn to roll with the punches and remember, build marketable skills that will help you out once you graduate. You will be just fine!
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One of my kids graduated in 2012, she only could get part time job, even then the part time job was cut to nothing. Eventually she was laid off from that job. She never once borrowed any money from her mom and dad.
Yep, my remark was based on an assumption that rates are at or about their peak with no knowledge whatsoever whether this is or is not true. If you happen to know, I’m all ears.
Likewise, my intent with the example of post-war Germany was meant entirely as ‘fun facts’ and not as a part of a comprehensive theory of markets moving forward. I have no idea where rates or inflation are going. Based entirely on the work of others, I draw a loose inference (at best) that inflation may be heading back to ‘under control’ status and that rates may not go much higher. But it’s all ??? here in the cquin85 household.
I know people who bond-ladder their way through retirement planning (and execution). I’m guessing, but haven’t called each of them to verify, that they are liking bond yields right now more than they have in some time. That was the gist of making the post. If one has a view that rates will eventually (whatever that means) come back down, 10-year corporate bond coupons issued in this market represent a better opportunity for yield than I’ve seen in some time.
@1NJParent , I’m not sure I understand all of your post, but I suspect that it’s more relevant for folks who actively buy and trade in debt instruments, rather than the folks who build retirement portfolios with some mix of fixed income instruments … i.e., buy and hold to maturity. No amount of sophisticated finance was meant to be imparted.
The U.S. Labor Department’s producer index, or PPI, rose 0.4% in September vs. the previous month, hotter than the expected 0.2% rise, per Econoday estimates. Wholesale inflation rose 8.5% from a year ago, higher than the 8.4% estimate.
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Tomorrow we will know for sure about COLA for SS. The good news about inflation is my SS will double in 7-8 years if they keep up with the 8-9% inflation rate, not sure I will pay off my mortgage or not. We will see.
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