The ‘Golden Path’

Fed officials trafficked in colorful language on Tuesday while describing recent events and opining on the economic outlook.

In one especially silly moment, Austan Goolsbee regaled CNBC’s Joe Kernen and Steve Liesman with tales of a yellow brick road to the macro promised land.

“There is the possibility of the golden path, as I call it” Goolsbee said, waxing semi-Biblical about the prospects for a soft landing. “Because of the strangeness of this moment,” the Fed may be able to return inflation to target “without a recession,” he went on, before suggesting Americans are currently witnessing what may be remembered as the “fastest-dropping inflation in the last century.”

To be fair, Goolsbee was adamant about the necessity of overweighting the price stability side of the mandate until inflation is well and truly beaten. But crowing about historic inflation declines was tone deaf, and hopelessly out of touch.

Consumers will be forgiven if they didn’t notice or are otherwise disinclined to celebrate Goolsbee’s milestone in the making. After all, it’d take a bout of depression-style deflation to return prices to levels seen prior to the pandemic. This Fed, whatever you want to say about their “successful” management of America’s first inflation crisis in a generation (and it has been a measure of successful, by the way), presided over the onset of a calamity — a catastrophic failure that’ll live in economic infamy.

We rarely (if ever) cite the simplest macro chart of them all, but maybe we should as a public service to all the people for whom the fancy visuals macro mavens produce while engaged in the nerd version of machismo (i.e., analytical one-upsmanship by way of Excel contortions) are totally irrelevant. For everyday people, what matters is that overall prices are up a helluva lot in a helluva short period of time. And nothing can fix it.

There’s no coming back from what Americans just experienced. I typically use the barber shop example, but you can cite anything you like, from accounting services to something as mundane as a trip through an automatic car wash. It’s all meaningfully more expensive now than it was three years ago, and the vast majority of those price increases are permanent.

We can debate whether that’s actually the Fed’s fault or, perhaps more aptly, what part of it is the Fed’s fault. We can also debate the merits of an ever-rising CPI index — the idea that some inflation is not only healthy, but in fact necessary. What’s not debatable is the contention that the upsurge beginning in 2021 was profoundly unhealthy.

On the off chance you haven’t noticed, workers are determined to reclaim what was lost to them over the last several years, where that means extracting higher pay from their employers. In a system where the bottom line is all that matters to corporates (“who” are beholden first, foremost and in many cases exclusively, to shareholders), it’s difficult to imagine that better pay and benefits won’t ultimately be passed along to consumers, who’ll then pressure their employers for higher pay. We’ve seen that movie play out again and again since 2021. The Fed’s contention that they haven’t seen evidence of a wage-price spiral is an “Us or your lyin’ eyes” sort of deal.

None of the above should be construed as a suggestion that runaway inflation will become a fixture of the US economy. And to be clear, Fed officials, including and especially Jerome Powell, are upfront (or as upfront as they can be) about their own forecasting failures and lingering upside risks around inflation. Powell’s a pretty earnest guy, God bless him. It doesn’t always serve him well, but as wealthy lawyers-turned investment bankers-turned policymakers go, there are less genuine people in the world, that’s for sure.

But it still feels, on some days, like there’s a collective unwillingness among all responsible parties (where that means politicians, technocrats and corporates, since we can’t expect an apology from princes, Putin or the pathogen that started it all) to tell the public the unvarnished truth, which is simply that regardless of who’s at fault, this was a catastrophe, and it’s not something that can be “fixed.”

There’s a sense in which consumers already know that, or if they don’t, they’ll understand it well enough within a year or two when they’re still paying every bit as much (plus more) for everything they need and want as they are today. Still, it might help foster trust among the citizenry at a time when Americans have lost almost all faith in the nation’s institutions, if someone, speaking in layman’s terms and in an apolitical context (i.e., outside of campaign rhetoric and divorced from the Beltway blame-casting), explained exactly what happened, why it’s not fixable and what the public should realistically expect going forward.

Powell’s “plain English” isn’t very plain in the context of a nation full of idiots. Everyday Americans couldn’t make heads or tails of an FOMC press conference. Average people don’t even know who Powell is or what the Fed does. That’s a good starting point: “Hi, my name’s Jay. I’m the guy who decides how much money costs, and I’m here today to explain why everything’s so goddamn expensive all of a sudden, and also why, unfortunately, there isn’t anything we can do about it other than try to slow it down.”

As it stands, it’s safe to say Americans view inflation as just another example of a problem for which there’s no accountability. Sure, people will assign blame according to party affiliation, and cynical elected representatives (in whom voters rightly place almost no confidence whatsoever, according to polls) are more than happy to perpetuate that blame-casting for their own political gain. But that’s not accountability. That’s just more rage politics. Accountability fosters trust. Blame-casting begets more distrust.

One thing’s for sure: If you polled Americans about the country’s cost of living crisis, no one would echo Goolsbee in singing the praises of a record-fast inflation decline. And the only thing “golden” would be any portion of household savings converted to precious metals.


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4 thoughts on “The ‘Golden Path’

  1. Ah, the Golden Road (to unlimited devotion).

    On a bit of a veer, reading a Barron’s story on the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit. The last two paragraphs caught my eye:

    “The sharp increase in the number of Americans struggling to make timely payments on their debts is surprising given the strong labor market and general economy, the researchers said.

    Understanding why, and whether the rise is due to shifts in lending or deeper financial distress among households, is something that researchers intend to continue to explore.”

    Another example of ivory tower researchers total disconnect from real life.

  2. Can our version of capitalism+democracy increase the wages of the bottom third by wealth without increasing inflation over the long? This is probably simple- minded but I see no other way than redistributing some of the wealth of the top 1-5%. Does that ever happen without violence. It just feels like the economic system we have is always going to revert to the current distribution of wealth regardless of monthly or yearly tweaks.

  3. Excellent post. Everything has indeed gotten much more expensive in a very short period of time. That’s why Biden’s poll numbers are tanking. Not his fault, but… The only way to (maybe) address this new paradigm is for the Fed to put its employment mandate on the shelf for the next year or two, hold rates where they are, and live with an unemployment above 5% or even 6%. Yes, the average working stiff will pay the price for the Fed’s negligence, but then that’s the deal we accept for living in a (mostly) capitalistic system.

  4. The economic stress is concentrated in the lowest quintile of income. (No investments, no RE, didn’t benefit from asset price inflation, not benefiting from high ST rates, overexposed to commodities, services, and housing inflation, yes they are more-employed at higher-wage now but their jobs are barely “living wage”, etc.)

    The P&L of the lowest quintile of income has little impact on most macro data. (Said with no actual research but unreasonably high confidence.)

    So it makes sense to me that many economic observers are puzzled at the sour economic mood out there.

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