‘It’s Very Concerning, You Know’

Neel Kashkari sees inflation. A lot of it. And he sees it everywhere. "It's very concerning, you know," he told CBS's John Dickerson Sunday, as though Dickerson were the policymaker and Kashkari the average American. "It's not just a few categories. It's spreading out." It sure is. Late last week, PCE price gauges accompanying June's income and spending figures underscored the message from the latest CPI report: Inflation isn't receding. It's fanning out and establishing new beachheads. For m
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18 thoughts on “‘It’s Very Concerning, You Know’

  1. The solution is not in the hands of the fomc. They can raise rates even more, it won’t fix supply. What it will do is cause a very sharp economic recession/depression. The cure will be worse than the disease. But it’s even worse, the drug will make the patient sicker. When this happens I will be waiting for the gallery of Larry, Mohammed, and the rest to admit it. But I think I will be waiting for a long time.

    1. Sure they’ll “admit” it. Because ultimately, what do they (and everyone else in the world) care about? Money and fame and headlines and recognition. Summers will be more than happy to cash a check from Bloomberg for going on TV and talking about a recession prompted by Fed tightening. El-Erian will be more than happy to write anything (even if it’s a mea culpa of some sort, which isn’t necessary right now, because he’s generally been proven right just like Summers) because that keeps his brand alive and as I’m sure you’ve noticed, his brand is highly lucrative. This is an entertainment business. Everybody is Jim Cramer.

      1. Incidentally, I’m not suggesting El-Erian gets paid for any articles he writes or TV cameos he makes. He certainly doesn’t need the money. All I’m saying is that given the frequency with which he weighs in across mainstream financial media outlets, it’s reasonable to suggest he believes that keeping his personal “brand” (figuratively speaking) in the news has some utility. He’s a known quantity and being a known quantity is generally conducive to lucrative opportunities in life, however you define “lucrative.”

      2. Remember that paid add that a bunch of luminaries took out in the NY Times telling Bernanke we were going to get massive inflation from his stimulus during and after the global financial crisis. I do, and I never remember seeing any kind of mea culpa from the group. Bernanke was right, and they were wrong. As I recall Summers was in the don’t spend too much back then- absolutely terrible advice and Obama paid for it- more importantly the voters paid and are still paying for it. Maybe I am overconfident, but as day is to night this kind of rapid monetary tightening is a gigantic gamble with the well being of our economy. If the Fed does not pause soon, we are probably going to witness a serious slowdown- and not what we have now- a long and severe recession. The reason is the economy is extremely leveraged and the rapid rate of tightening monetary policy will turn out to force a painful deleveraging. (System is fragile). Then the Summers, Dudleys and El Erian will move on to their next pontification. One thing Dudley is right about is the idea that it is extremely hard to have a soft landing now. What perplexes me is that he advocates a rapid increase in policy rates anyway. Lets just call it Monetary Hari Kari….I guess when you are a GS partner and then President of the NY Fed you are kind of removed from the consequences of your policy advice.

        1. Yeah, my point is just that none of these people care because why would they? They’re all rich. Like, the truth is that people in advanced, developed economies who are fortunate enough to be in the top two income quintiles really don’t care about anything at the end of the day. They argue, debate, etc. from 9 to 5, and then that’s when it stops because what difference does it actually make if you have a nice family, an $800,000 home and you can just turn it all off at dinner time, safe and secure, and flip it back on the next day once you’re rested? What I try to drive home here in these pages on occasion is that for the vast, vast majority of humanity, that isn’t the case. Life is arduous (at best) and pure suffering (at worst) all day, every day, with the only respite coming from sleep. That’s what I mean here. Larry Summers, El-Erian, you, me, every anchor on CNBC, most people who read this site, Fed officials, economists, etc. — we can all just forget about this stuff at 5 PM if we want. It’s easy to forget that for the people we’re actually talking about when we have these debates (i.e., families trying to get by with two or three or four kids on a $70,000 annual income), there is no 5 PM. There’s just worry, worry, worry, sleep, wake up, and worry some more. And that’s in developed economies during peace time. Let’s not forget what life is like for a family in Yemen or Syria. I mean, this is all just such a silly charade. This isn’t real life. The vast majority of people on this planet are struggling to survive. And we’re, you know, debating the impact of last year’s fiscal stimulus on bond yields or something.

          1. It does matter due to the affects on the average person. Inflation is pernicious- I don’t disagree. I part company with those that are advocating slamming on the brakes so quickly, since that will really hurt a lot of people- the kinds of folks you mention above. Obviously some sort of adjustment had to be made in rates- policy rates were clearly too low. But the Fed is caught up in a panicky move to hike rates. I found it extremely telling that Mester dissented for a 50 bp hike in the meeting before last. She is a well known hawk. But she stated something like 75 could be destabilizing and indicate panick on the FOMC’s part. Policy rates are a blunt tool- some rate increase was clearly justified, but it did not have to be radical. Many of the leading indicators point to landmines. Employment, due to supply constraints will be one of the last shoes to drop- but rest assured it will in the fullness of time if the FOMC continues this policy.

  2. Employment is generally a lagging indicator, at best it is coincident. By the time the fomc sees this rollover it will be too late. If they continue rapidly raising rates my over/under u5 unemployment rate is 6.0%.

  3. H-Man, while it may be an entertainment business, it has a side effect of influencing what people will do with their money. It seems that everyone is seeking the financial Messiah to guide them to the proper investment structure – the elixir. So we resort to the roadshow of the digital world to give us that supreme guidance. Information, no matter how it is delivered, is powerful which does not mean it equates with knowledge or that it is accurate. Information is just that – information. How your process it and value it, is your call.

    Meanwhile back to more mundane matters. If neutral is 2.5% because the presumed inflation rate is 2%, we can’t be neutral ala Ackman since inflation is +9%. Maybe we call that “future neutral” but not neutral today. Real neutral is closer to 9.6 assuming current inflation rate of 9.1, so it seems we have a ways to go. If that doesn’t make sense, why are we raising rates if we are at neutral right now?

    Forgetting the neutral stuff, right now labor and OER inputs account for a ton of inflation. So according to future predictions of inflation, labor costs and OER are going to fall off a cliff by the end of the year. Really. So go long if you believe that or you go short or run to the sidelines if that seems like baloney.

  4. The simple solution is more immigration, but outside of the most liberal districts, advocating for more immigration is political suicide.

    Incidentally, the Dodge Stratus skit is one of my all time favorite SNL sketches. I remember watching it live with my girlfriend. The long moments of angry silence where you only hear cutlery on china… perfect.

  5. Prior to the pandemic, we went through three epochal shifts in the nature of the labor supply in the US, and its relation to the economy: The demise of private-sector unions, the wholesale addition of women to the labor force, and the off-shoring of manufacturing to low-labor-cost parts of the world (globalization). This happened in conjunction with the long bull market in bonds. We have all bemoaned the lack of wage growth (for 50 years) for much of the American labor force, which was a result of these major trends that changed the labor force. One could argue that these trends were just about played out by 2020. Yes, the pandemic and the subsequent war in Ukraine are the immediate causes of our disrupted economy, but we were primed for a disruption. This analysis is of absolutely no use in helping to predict where we go from here, or how best to set policy. But it should be clear to everybody that we shouldn’t be looking for a return to “normal,” if by “normal” we mean the economic regime of the past 50 years.

      1. An aside: If we’re going to start building huge new manufacturing facilities in Phoenix and other parts of the sun-baked desert Southwest, we need to do a much better job designing them so they don’t worsen our already alarming climate situation.

        1. I agree, but, respectfully, you don’t seem to accept that what we do in the US can’t change the climate situation much when folks in the two largest populated countries with nearly 3 bil people are burning more and more coal every day. People in rural India are lucky to have 8-12 hours of electricity a day. The average GDP per capita there is around 2 grand a year, a month’s apartment rent here. India is looking to get carbon neutral maybe by 2070. Imagine what they will be doing til then. The US can’t fix the climate because a hundred other countries, including the two biggest ones, will do just about anything they can to catch up to the rest of us. Billions of people still live in the dirt with no secure water access, little food, and shelter that wouldn’t protect our garden tools. Even worse than factories in Phoenix is farming in Phoenix.

  6. Rich and enjoyable discussion here. Lots of interesting comments and issues noted. Fun and informative to read.

    My 2 cents: As always, there are multiple issues/challenges occurring in parallel as the Fed tap-dances in the face of inflation. I don’t know it for a fact but would venture to guess that, by and large, a large and significant proportion of workers on the lower levels of the economy who need it, and some of whom need it more desperately, are among the folks getting the raises.

    The sad irony is it helps little in the face of 8-9% inflation. We can hope the Fed actions diminish the rate of inflation, but that remains to be seen in the months ahead. Federal and state statistics in the weeks and months ahead will tell the story of how it all washes.

    I sincerely hope Biden follows through with his stated intention to hasten the return of manufacturing onshore, which may enable Americans to work in roles that enable greater value for the country and the economy in its workers. It cannot be accomplished quickly because of the scale of the problem. But whatever can be done at this stage can be a help.

    The Chinese are another problem for another conversation. But they seem to be undermining and spoiling their own economy as we speak.

    1. A couple of thoughts here. On-shoring seems patriotic and all, but our nominal wages are rising fast and making more products here won’t help inflation. And who will work for these new onshore suppliers? We can’t fill the jobs we already have. We block immigration so the companies that might have hired the immigrant workers will move more operations offshore. Deere just moved a big operation to Mexico. Others will follow. Whatever China or India or any other country does is their right. They will do what they want, just as we will do what we want. That’s sovereignty.

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