Bad Calls, Worse Op-Eds And Terrible Ideas
Sometimes it's hard to know who's serious and who's just after some press these days.
"I see interest rates in the US going to 9%," Mark Mobius told Bloomberg. "Sorry. How much?" the anchor interjected. "9. Simply because if inflation is 8%, the playbook says you've got to raise rates higher than inflation, which means 9%."
With apologies to Mobius, there's nothing "simple" about that. Notwithstanding the Fed's unfortunate penchant for fighting the last war and perpetually skating behind (as o
Summers may win the micro argument, but bigger picture is that krugman is probably correct there. To krugman’s credit he admits his mistakes publicly and loudly. El erian sounds like he is angry he did not get appointed to a high fed position, at least if you listen to his statements. What these critics cannot answer is the following. Granted the Fed was late to tighten. But how about the central banks that went earlier? Not much difference is the answer. Look at Canada and new Zealand for instance. That’s because much of the problem is supply side shocks. The central banks monetary policy in the short and medium term is ineffective on this problem absent causing depression. Summers for one says the Fed needs to go a lot higher, and in the same breath says it will cause a financial crisis. Brilliant! (Note the sarcasm). Gee can I teach at Harvard or Cambridge with such genius?
@RIA – interesting point on the “success” of the early movers.
El-Erian – our Dear Leader rightfully points out El-Erian’s constant criticism of the Fed not following his advice early enough. Perhaps he is correct, but YOU HAVE TO PLAY THE CARDS YOU HAVE BEEN DEALT, NOT THE HAND YOU WISHED YOU HAD BEEN GIVEN.
Whining and screaming about what the Fed “should” have done is pretty irrelevant to what investors should be doing now.
RIA, I cannot speak about the Kiwis, but here in Canada in February there was quite a bit of questioning why the BoC didn’t start hiking even sooner, despite indicating that they were ready to do so imminently. They probably felt that they really couldn’t when the Fed still seemed to be inexplicably doing nothing. You can’t just ignore the Alpha gorilla in the room, especially when our economy is tied very closely to the US. The BoC led the Fed really by only a month or so, but the BoC willingness to do large hikes is where it actually showed leadership. But the start of rate hikes had an immediate effect on our housing market, which peaked in February and has been falling in price ever since. So I would argue that there was a difference to inflation in hiking earlier.
Of course, our housing market was more inflated and we don’t have odd measuring tools like OER here, so the slow weakening of our inflation rate is now evident. This despite almost a 10% drop in the loonie, which is quite inflationary seeing as we import so much from the US.
In the anecdotal observation category, a buddy who sells and installs swimming pools tells me his pre-sales are down 80% compared to last fall. It is one of those luxury items that can easily be delayed or cut when your sense of what you can afford changes. But someone else who sells security software to corporations says suddenly no one is meeting their monthly numbers, despite that being a somewhat non-discretionary item.
Finally, I don’t find it shocking to contemplate 9% on the Fed rate; it could happen unless we all join prospective pool owners in cooling our jets until the constraints in the economy are resolved.
An anecdotal observation from Manhattan — admittedly sui generis when it comes to real estate. Corcoran just put out a mailer letting my wife and our neighbors know that a two-bedroom unit with a bit of outdoor space down the block had sold for $1.4m, $140k above the asking price, with the winning bid one of seven above the ask. My lens is narrow, but it hardly seems as if real estate has come off the boil.
I live in a KC suburb and just got our HOA monthly organ. In it was an ad for a RE broker showing prices paid for about 40 local properties. Only five sold below the asking price. One was listed at $1.2 mil and sold for $1.75 mil. I guess the prices, here at least, are not crashing yet. Average time on the market is increasing but prices still seem to be firm.
In the Pacific Northwest we are seeing actual for sale signs posted at houses for sale as well as an occasional “price reduced” sign. That was not the case recently
I like the idea of Fed accountability a lot, but H explains the problem with it, essentially making accountability not an option, at this point I would rather no Fed instead of a Fed of Congress’ choosing. It would help if the Swedish refrain from handling Nobel prizes to former Fed members, no accountability, no real stake in outcome (no Fed member will go poor) plus positive reinforcement does not provide the best incentive to be careful.
Great article! This commentary on commentaries is why I subscribe. I am not a trained economist, but the current bout of global inflation is not limited to the US and it seems inappropriate to lay the fault with the Fed. Inflation has spiked in the West. How much aid has gone to Ukraine? How much inflationary pressure does this “stimulus” (at least stimulus of the military-industrial complex) produce? Could this stimulus be frustrating the effects of central banks hiking rates? The other concern I have is worker productivity. It seems to be taking quite a bit to “woo” workers back to the job after the covid lockdowns invited them to stay at home. Eventually going to work and showing some hustle on the job will become business as usual, but we are not there yet. I don’t see what the fed can do about that.