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Move the Inflation Goal Post to +4.7% Avg - Yellen
The avg 4.7% mentioned is for 2022 only. Given high inflation in the first part of the year, it seems a projection of 4.7% avg anticipates quite low inflation in the second part of the year.
"ECONOMY. Soft-landing or hard-landing/recession? The economic data are pointing to SLOWDOWN – home sales, household savings, PMI, jobless claims, Atlanta Fed GDPNow, business inventories, layoffs, consumer confidence, rents/owners’-rent-equivalents. Rising fed fund RATES and QT combo will result in strong monetary tightening. A way out may be for the FED to just move its average inflation target from +2% to, say, +4%, so say several strategists and economists (YARDENI, own firm; ROMER, NYU; El-Erian, Allianz). Fed’s favorite inflation indicator PCE already lags others, and it is down to +4.9%, not far from +4%."
Inflation ran around those levels in the late 60's to just before the oil embargo. During that period the Fed funds rate averaged around 5%.
Sounds to me like Mr. Market is not ready to have his punch bowl taken away. It must sound easy to live with inflation running around 4.5% if you've never actually experienced it.
Well, everybody knows what the medicine is for inflation. But know one wants to take it right away. The longer the delay, the worse it gets. Think our society is showing some strains now? Wait til inflation is the new normal.
Of course, what the Treasury predicts, or expects, doesn't mean much since the Federal Reserve is an independent body. The same goes for Wall Street wizards.
Well yes, but "independent" to an extent: their authority can be modified or even revoked by Congress. The Fed is well aware that there is a significant group of right-wing Trumpist Republicans who would just love to do exactly that, and you can bet that they are looking over their shoulders every time they make a significant decision.
So the team in place to manage the economy -- Paulsen at the Fed, Yellen at Treasury --- failed so miserably at managing to 2%, they want to "grade on a curve" --moving the Pass/fail mark to 4%...?
The team needs to go. They are failures. They've failed in their management of the economy.
The Fed's mandate is price stability. Constant 2% is not price stability, rather its price erosion.
Target 0%. -- In fact, target the general price level circa 2010.
The rationale for targeting a small positive inflation, e.g. +2%, is that there is some uncertainty and the governments want to avoid deflation at all costs. So, they target +2% but then also miss sometimes, and we then get slowdowns/recessions/deflations. Targeting 0% would mean slowdowns/recessions/deflations too often. So-called gold standard did mean 0% inflation target.
The captain obvious explanations are not needed for me. I know them. I have heard them. I view them as more lies told by the regulators/politicians.
Between Jan 2010 - May 2022, the price level has increased 35%. Since Jan 2000, a 73% increase in the price level.- That is using the CPI, which severely undercounts real changes in cost of living. - The source of that stat is from bls.gov's CPI price calculator.
A 35% debasement of buying power over 12 years is not "price stability" These jokers have failed. The institutions have failed -- They have a "mandate" then they construct policies with the predictable result of avoiding the mandate.
The captain obvious explanations are not needed for me. I know them. I have heard them. I view them as more lies told by the regulators/politicians.
Between Jan 2010 - May 2022, the price level has increased 35%. Since Jan 2000, a 73% increase in the price level.- That is using the CPI, which severely undercounts real changes in cost of living. - The source of that stat is from bls.gov's CPI price calculator.
A 35% debasement of buying power over 12 years is not "price stability" These jokers have failed. The institutions have failed -- They have a "mandate" then they construct policies with the predictable result of avoiding the mandate.
Cut wages by 10% & see if inflation follows. The trickle down effect !? Ha Ha ! It doesn't work that way, but why not ? Greed . Enjoy your Sunday, Derf
Sometimes it does. As described in a NYTimes article (excerpted below) about Target cutting prices. Or encapsulated more succinctly in this cartoon:
Target, like many retailers that faced skyrocketing demand in the early months of the pandemic, stocked up on goods as snarled supply chains delayed shipments. But consumers are now turning away from goods like furniture, appliances and other products for staying home and shifting to spending more on experiences and going out.
Great cartoon. Anybody who shopped for home furnishings and/or wood products during the past couple years had to be struck by the scarcity of supply and exorbitant prices. Seems like everyone decided to add a new deck to their home or replace worn LR furniture at the same time. I really can’t explain it. Here’s an OT post I submitted more than a year ago voicing some of that frustration. It only got worse as the summer progressed. Furniture Shortage?
While I haven’t yet read it, Barron’s this week has an article about plummeting lumber prices. Go figure!
COMMODITIES. That is the sound of falling LUMBER (recently $580 per 1,000/bd-ft; peak $1,711 in 05/2021) from weakening housing demand, rising mortgage rates and lumber mills running at full capacity. New home inventories are now at 9 months vs only 4.7 months a year ago. There is more downside to $300-400. May short futures or ETF WOOD.
@yogibearbull - Thanks. People here won’t believe me. But I believe we’ll be reading similar stories about the price of crude oil in 1 or 2 year’s time.
"So the team in place to manage the economy -- Paulsen at the Fed, Yellen at Treasury --- failed so miserably at managing to 2%, they want to "grade on a curve" --moving the Pass/fail mark to 4%...?
The team needs to go. They are failures. They've failed in their management of the economy."
Edmond seems to be disappointed by the results of our financial team. I'd be very interested to see him list a few nations who have done the job "properly" according to his standards.
Not to detract from the intelligent discussion, but the problem of skyrocketing prices reminds me of the Nixon administration’s total failure at price controls. Be careful what you pray for. I certainly don’t pray nostalgically for a return to the 1970’s.
Has any country ever targeted a set level of inflation and adhered rigidly to it? I’d be interested in examples. Sounds like a dubious proposition. Many external factors enter into the level of inflation - not the least of which are the prices of imported products. Than there’s immigration levels (supply of laborers), foreign currency exchanges, technological innovation, climate (effect on crops), wars, etc. I’m not aware of the U.S. ever having an official inflation target up until the time the Fed began targeting 2% (5-10 years ago) because they were scared silly of deflation developing (negative inflation / falling prices).
I don’t think Paul Volker ever set an “inflation target” either. What he did was jack up overnight lending rates to around 20%. That in conjunction with Regan’s war on PATCO (the opening salvo in a long running war on labor unions / diminishing pay and benefits for union members) threw the country into the worst economic morass since the Great Depression with unemployment remaining near 10% for two years. (Akin to swatting a fly with a ball bat.)
Inflation will vary year-to-year and region to region. CHART In 1990 it was running between 5,5 and 6% in the U.S. In Sweden it was 11%. In Japan about 4%.. And 7.5% in Great Britain.
"Many external factors enter into the level of inflation - not the least of which are the prices of imported products. Than there’s immigration levels (supply of laborers), foreign currency exchanges, technological innovation, climate (effect on crops), wars, etc."
@hank- No, no... you've got it all wrong. None of that stuff is important... it's all the fault of Paulson and Yellen. Let's keep this simple.
So tell me, geniuses, how was the Fed and other policy makers supposed to: - Anticipate the Russian invasion of Ukraine and its effects on gas prices? - Prevent supply chain disruptions, which were caused by the pandemic and corporations faulty decisions to cut back too much on production? - Labor shortages and resulting cost increases caused by the pandemic and years of corporations skimping on wages?
Too many people blame government leaders for problems outside of their control and often caused or made worse by poor corporate decisions.
Comments
"ECONOMY. Soft-landing or hard-landing/recession? The economic data are pointing to SLOWDOWN – home sales, household savings, PMI, jobless claims, Atlanta Fed GDPNow, business inventories, layoffs, consumer confidence, rents/owners’-rent-equivalents. Rising fed fund RATES and QT combo will result in strong monetary tightening. A way out may be for the FED to just move its average inflation target from +2% to, say, +4%, so say several strategists and economists (YARDENI, own firm; ROMER, NYU; El-Erian, Allianz). Fed’s favorite inflation indicator PCE already lags others, and it is down to +4.9%, not far from +4%."
Maybe extremely red hot summer
Maybe rate hikes hold after august
Sounds to me like Mr. Market is not ready to have his punch bowl taken away. It must sound easy to live with inflation running around 4.5% if you've never actually experienced it.
Well, everybody knows what the medicine is for inflation. But know one wants to take it right away. The longer the delay, the worse it gets. Think our society is showing some strains now? Wait til inflation is the new normal.
Of course, what the Treasury predicts, or expects, doesn't mean much since the Federal Reserve is an independent body. The same goes for Wall Street wizards.
https://www.wsj.com/livecoverage/stock-market-news-inflation-consumer-price-index-may-2022
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
The team needs to go. They are failures. They've failed in their management of the economy.
The Fed's mandate is price stability. Constant 2% is not price stability, rather its price erosion.
Target 0%. -- In fact, target the general price level circa 2010.
Between Jan 2010 - May 2022, the price level has increased 35%. Since Jan 2000, a 73% increase in the price level.- That is using the CPI, which severely undercounts real changes in cost of living. - The source of that stat is from bls.gov's CPI price calculator.
A 35% debasement of buying power over 12 years is not "price stability"
These jokers have failed. The institutions have failed -- They have a "mandate" then they construct policies with the predictable result of avoiding the mandate.
Enjoy your Sunday, Derf
While I haven’t yet read it, Barron’s this week has an article about plummeting lumber prices. Go figure!
COMMODITIES. That is the sound of falling LUMBER (recently $580 per 1,000/bd-ft; peak $1,711 in 05/2021) from weakening housing demand, rising mortgage rates and lumber mills running at full capacity. New home inventories are now at 9 months vs only 4.7 months a year ago. There is more downside to $300-400. May short futures or ETF WOOD.
I don’t think Paul Volker ever set an “inflation target” either. What he did was jack up overnight lending rates to around 20%. That in conjunction with Regan’s war on PATCO (the opening salvo in a long running war on labor unions / diminishing pay and benefits for union members) threw the country into the worst economic morass since the Great Depression with unemployment remaining near 10% for two years. (Akin to swatting a fly with a ball bat.)
The Regan Recession
Inflation will vary year-to-year and region to region. CHART In 1990 it was running between 5,5 and 6% in the U.S. In Sweden it was 11%. In Japan about 4%.. And 7.5% in Great Britain.
@hank- No, no... you've got it all wrong. None of that stuff is important... it's all the fault of Paulson and Yellen. Let's keep this simple.
- Anticipate the Russian invasion of Ukraine and its effects on gas prices?
- Prevent supply chain disruptions, which were caused by the pandemic and corporations faulty decisions to cut back too much on production?
- Labor shortages and resulting cost increases caused by the pandemic and years of corporations skimping on wages?
Too many people blame government leaders for problems outside of their control and often caused or made worse by poor corporate decisions.