Fed, Biden Risk Credibility Crisis With Inflation Cliffhanger
"Prices surging," declared alarmist chyrons on Saturday morning news shows in the US.
If it's inflation expectations we're concerned about, it probably doesn't help that Americans are now starting their weekends bombarded with news about rapidly rising prices for everything from gas to food.
That's not to say cable news should purposefully bury the story. It's just to state the obvious: Inflation can become self-fulfilling through the expectations channel.
If you wake up to your favorite news
Powell and the FOMC are not the answer. Virus control is the answer. The public was going to suffer one way or another no matter what the FOMC decided to do. Once the virus gets under control, likely there will be some reallocation away from goods and towards services. And the delivery of goods, and some critical inputs such as energy, semiconductors, labor and many other components will be able to normalize as demand and supply recalibrate. BIden and the Democrats need to pass their bills all by next spring, and if they take a shellacking in 2022 so be it. By 2024 they will have the time to bounce back perhaps. With any luck things will start to really get better in 2023 for the public and thus possibly the Democrats.
Speaking of high inflation becoming a feature of American life… What are your thoughts on the 14.5% increase in mandatory Medicare Part B premiums for 2022? I for one am highly skeptical they’ll be reducing those anytime soon. What are your thoughts Mr. Heisenberg?
I suspect that if the democrats take a shellacking in 2022 it’s game over for the democracy.
I am in LA this weekend visiting my daughter and helping her find a new apartment. The restaurants are jam packed. You better reload Resi, Yelp, etc. because you are going to need a reservation.
She found a great apartment she can afford- we toured it and everything looked great- except the landlord is waiting on a new dishwasher and a washer/dryer- LOL.
One last thing- she is a financial analyst working on 2022 budgets. In order to make budget, salaries are going up. And by the way, that person who does not really do much (what does he do, exactly?) is getting fired. He just doesn’t know that yet.
All the old Wisemen are out beating the drum to help create a self-fulfilling prophecy rather than stating the particulars of the conundrum.
Ria I am in your camp.
Seems like many thought helicopter money would be able to create inflation. We did that. Now we have inflation. Maybe helicopter money has some role in this?
one nagging thought that I’ve wondered about, while also not having the economic sophistication to fully answer is this – what if the Fed’s QE 4 program / $ quantity had been 50% of what it was – asset prices would likely have been lower, buying power / wealth effect less / demand lower probably, maybe supply chain issues less stressed / problematic, – and inflation less that what society is currently experiencing meaning less social discontent given the enormous disparity in wealth that’s gone hyperbolic since 3/2020 … again it’s been a nagging thought – very curious about others’ thoughts on this….thanks…