Sometimes I doubt it occurs to the media how instrumental they are when it comes to shaping public opinion and setting the tone for (un)civil discourse.
That might come across as an odd assertion. After all, spinning narratives and influencing public opinion is quite literally the media’s job. In many ways, they’ve taken over for advertisers in that regard.
Often, if you watch the evening news, the commercials feel like a respite. Advertisements used to be the annoyance you were forced to endure between programming. Now, ads (the television variety anyway) sometimes come across as soothing interludes between someone’s abrasive retelling of everything that went wrong in the world that day.
The media is, of course, well aware of their role. But occasionally, they seem to lose track of it on the way to getting lost in their own echo chamber. This is particularly true of the financial media, and it’s on full display right now vis-à-vis the stagflation debate.
Financial portals run story after story about spiraling price pressures and stagflation, then cite the market reaction to those stories as evidence to support their veracity. Meanwhile, the public reads the same stories and adjusts their own expectations accordingly.
Consider, for example, that the volume of Bloomberg stories mentioning ‘stagflation’ touched a record last week. Meanwhile, the latest installment of The New York Fed’s consumer expectations survey (out Tuesday) showed short- and medium-term inflation expectations hit yet another series high (figure below).
One-year-ahead expectations rose to 5.3% last month. It was the eleventh straight monthly increase. Median three-year-ahead expectations rose to 4.2%. September’s increase marked the third consecutive monthly rise.
Although there was some moderation in expectations for price changes in various commodities, as well as for college, food, rent and medical care, the inexorable rise in overall inflation expectations is concerning, and it’s likely being driven in part by incessant media coverage.
It’s worth noting that the “K-shaped” inflation dynamic was on full display in the September survey. Year-ahead expectations for both the most undereducated and the lowest-paid demographics accelerated (figure below).
One-year-ahead expectations for those with a high school degree or less and for those who make less than $50,000 per year are at 6%.
On the bright side for market participants, a study conducted by Bloomberg suggests that “risk assets can rebound handily once the volume of news stories citing [stagflation] stops growing.” What a relief.
Of course, that’s not much help to the people who are the most worried about inflation and who are the most affected by it. If you didn’t go to college and make less than $50,000 per year, you’re far less likely to own risk assets like stocks.
Paradoxically, spiraling inequality in the US could help keep inflation in check. “Inflation fears driven by excess consumer savings look less urgent once the distribution of cash is accounted for,” BofA’s Research Investment Committee wrote, in a Tuesday note.
The bank observed that “70% of the $3.8 trillion increase in liquid assets since 2019 went to the top 20% of households.”
That matters, BofA said, because those households typically spend less than 50 cents of every extra dollar, which means “the extra liquidity will likely flow back into financial assets… not adding to demand for real goods and services.”
Somehow, I doubt that’s going to make the “bottom” 80% of society feel much better about the situation.