There is a lot of chaff but I find it here on HN, reddit (personal finance, investing, wall street bets, quality convos in other random subs), and a limited number of posters on Twitter (probably my least favorite place, bleh).
Lyn Alden probably has some of the best commentary on the current state of the US economy. Would highly recommend checking out her blog if you're looking to learn more: https://www.lynalden.com/
> Unlike in past recoveries, strong demand for goods such as autos, furniture and appliances has driven much of the inflation surge. Prices for services—such as for travel and recreation—have generally climbed much less with softer demand. The holiday season is likely exacerbating these dynamics, said Aneta Markowska, chief financial economist at Jefferies LLC.
We're seeing crazy price growth without a rise in demand for services. But that'll likely change and fuel inflation further as covid restrictions are lifted.
I still believe it is due to the large money printing by the Fed, a total of around 10 trillion disbursed for various programs. We saw inflation in nearly every asset class in our economy, blowing past pre-covid numbers, and now its coming to consumer prices. I just hope we have the political will to do something about it. Unemployment is very low and the Fed is still dragging their feet about maybe 1 or 2 potential raises next year and a slow unwinding of the trillions in assets its built up over the last year
> I still believe it is due to the large money printing by the Fed, a total of around 10 trillion disbursed for various programs. W
If the Fed's policy was responsible, then we'd see a divergence between inflation rates in European countries and the US. We don't though. European inflation rates (across the board) closely track what's happening in the US.
What we do see is a similar demand reallocation in both portions of the world. Demand has shifted from services to goods, and that increased demand drives inflation.
I would love to understand why the fed hasn't increased interest rates to counter the rapid increase of inflation..?
I remember learning some basic economics in 2019 about how the U.S. learned a valuable lesson from 2008. How they will never make the same mistakes of letting inflation go unchecked because they have tools to work against it. Yet inflation has rapidly scaled to 6.8% (reported).
Also, I am keeping supply chain demand in mind but I don't think it excuses the fed's decision to not immediately start curbing high inflation rates. My guess is that people with money are profiting and want to continue profiting until it is no longer sustainable.
Bubbles don’t have to implode. They can just reach a point where there’s a long consolidation and things are sideways until reality fully rationalizes the bubble and it shrinks.
This happens all the time with stocks. A stock could get very bubbly and reach an insane valuation to the point people think it will pop! But then it never does, instead it just stops rising and the underlying company eventually catches up to the valuation, until people think it’s a good buy again and start pumping the price even higher to the next leg up. Eventually the stock can never truly pop and go back to the pre-bubble levels because in the time that has passed the company actually did become more valuable.
They cant raise interest rates. If they do it will be nominal. We have too much debt. If we raise interest rates we will bankrupt ourselves. Inflation helps us chip away at the debt .
Lesson learned from 2008 was not fear ofinflation, it was fear of not injecting adequate money into a market after a downturn. I don't know what you're talking about.
It won't stop the inflation. When inflation is due to printing money, the only thing that can be done is to sit back and wait for it to work it's way through the system. All raising interest rates would do is trigger a rerun of the Savings and Loan Crisis, as the huge quantity of long term, fixed rate, low interest rate loans, is suddenly devalued by short term, high interest rate loans. (Which is probably going to happen anyway, because Central Bank control over interest rates can be more than slightly illusionary at times like this. (Lenders can work out inflationary devaluation rates just as well as anybody else can.)
2008 was a very different scenario, the money that was printed then was forced into a narrow loop within the financial system and just used to sanitise a lot of bad debt away from the banking system.
In some sense, the eventual logic of the last 20 years of massive increases in the total amount of debt circulating, due to loan securitisation, was that that debt would have to be devalued to make it repayable. And here we are.
I suspect there is no source for this, but OP is just summarizing what the Fed is hoping will happen -- basically they have printed too much money but they don't want to raise interest rates either, so they are just going to sit back and wait for the excess money to flow through the system.
They won't, there will be too much political pressure for the president with the mid term elections coming for the fed to take the risk of raising rates. If they want to raise rates, they will do it in 2023 so the current regime can blame the fall out on, I'm assuming, the newly elected Republican Congress.
I'm assuming the next cycle will be a huge win for Republicans for two reasons.
1) Things we saw in this last election. For example, a truck driver won in New Jersey against their senate president with a campaign budget of $153
2) Joe Biden's approval rating the the the high to mid 20's
I disagree with this. Powell could blow up the entire economy in about 5 seconds if he wanted to by saying rates will be 4% in June and inflation would be done tomorrow. Housing would tank, the stock market would tank, unemployment would sky rocket, wage growth would immediately stop and probably revert a bit. Inflation could have some ups and downs from there but I don't think it would average above 2.
The problem is we can't raise rates without blowing up the economy, not that it wouldn't stop inflation. It doesn't matter how much money is in the system if you nuke velocity back to near zero.
I'm talking in the medium term here. Because the response to this is in my mind literally a 10-20 trillion dollar stimulus package. THEN we will see inflation.
We're assuming the lever of markedly higher interest rates over a long period of time, generates in this tremendously complex economic machine, the output of lower consumer inflation. I'm not sure we'll see that lever pulled anytime soon, and if we do, I'm not confident it will work precisely as you describe.
Asset price inflation will reverse. But that wasn't trickling back to consumer inflation anyway.
Think of it this way. If you had 10x your annual salary to store somewhere, and the values of traditional stores of wealth (e.g., stocks, bonds, and real estate) were seriously stuck in reverse for the foreseeable future, where would you stash your value? Sardines? Bottles of wine?
We forget how young modern finance is, basically since the 1970s. For the first 10 years of that era, both interest rates and consumer inflation increased in tandem. We've built a narrative around that correlation, but what if that narrative is incomplete?
Inflation in our circumstances isn't due to an increase in the money supply. Here's why:
* Aggregate demands isn't too much different from before the pandemic.
* Demand for services has fallen into the toilet.
* Demand for goods has gone through the roof.
This massive reallocation of resources from one portion of the economy to another has created a situation where demand for goods far outstrips supply. Therefore we have inflation. (Increases in food prices are caused congestion in the labor market.)
This is not about US economic policy. You can see this by looking at inflation rates in Europe (and specifically Germany). These countries have very different economic policies than the US, but their inflation rates pretty much track what's happening in US. Therefore it is a common effect driving inflation in both places.
What's the point? Other countries have widely diverging monetary policies from the US, but they're undergoing the same inflation spikes in the same areas of the economy. If the money supply was the cause then we'd expect to see these diverge, and they're not.
On the other hand we've had months of prices yo-yoing across the economy, both rising and falling. If it was about the money supply then we would not see price decreases following many increases. (e.g. lumber costs a few months ago.)
We also having diverging demand for goods and services.* If it was just about the money supply, and not a demand imbalance then we'd see increases in both demand and cost for services, and those matching increases don't seem to be there.
>I would love to understand why the fed hasn't increased interest rates to counter the rapid increase of inflation..?
Collapse of the underlying assets that they hold. Bailing out the housing market during the pandemic means the fed holds lots of housing market. The theory is that they will let the assets mature and then pull the money back out to come back to a balance. I'll tell you now, if you believe that's about to happen I've got a bridge to sell you. The US still hadn't done this the day before covid started. Covid is far worse.
>I remember learning some basic economics in 2019 about how the U.S. learned a valuable lesson from 2008.
The irony is that the financial crisis at least help the USA today. Compare this to other countries like Canada and we are far worse off than the USA during the financial crisis.
>How they will never make the same mistakes of letting inflation go unchecked because they have tools to work against it.
Those tools are maxed out.
> Yet inflation has rapidly scaled to 6.8% (reported).
The fed made the claim that they would run inflation hotter because they didnt hit target of 2% during covid. The problem? They had to act by now. They've past that threshold of coming to parity.
>Also, I am keeping supply chain demand in mind but I don't think it excuses the fed's decision to not immediately start curbing high inflation rates. My guess is that people with money are profiting and want to continue profiting until it is no longer sustainable.
The metric to look at was GDP. When GDP was 6.7%, inflation was at 5.4% or so. The big problem is that gdp dropped to 2.1% and recession metrics spiked.
If the fed increases rates while gdp is dropping. recession is certain. It's too late for them to undo what they did bailing out the housing market. It would seem counterproductive to spend all this money to prevent housing from crashing just to let it crash anyway.
So we're stuck. Inflation is going sky high. It looks to be about 40% locked in right now over the next few years.
You thought minimum wage wasnt keeping up? This is literally everyone except the rich getting much poorer soon.
>Thanks a lot for the explanation! I greatly appreciate you taking the time to break things down for me.
It's a super complex issue that even the Fed probably has yet to understand. So I certainly don't as well. Many consequences could happen instead.
Flipside, what just happened? The government effectively owns a huge portion of land again. Sure someone else is holding the title but really the government owns it. The banks/funds sold it to the government because they know they dont want to hold it.
What does communism look like? The government owns everything.
>Wait, you're predicting 40% inflation in the US over the next few years?
So is many others. It's possible to look at the numbers and make the assumption the central banks won't reverse this. Afterall that basically never happens in history.
M0 money supply was increased about 100%. M1 was increased by about 400% Those arent direct relationships, M2 on the otherhand... the bump from covid and increase in rate clearly denotes about 40% inflation locked in. It wont show up all in 2022. It'll spread out over time. But worse yet, what happens in between?
Because half of US companies and the US government itself as long as basically every pension and retirement fund are levered up either directly or indirectly to their eyeballs in cheap debt.
Our entire system would quickly be insolvent at a rate that would have seemed low 20 years ago.
> I would love to understand why the fed hasn't increased interest rates to counter the rapid increase of inflation..?
One reason is that they are still purchasing assets in order to goose the economy. It doesn't make any sense to be revving the economy with one hand while tamping it down with the other plus the point of the buying is to artificially depress interest rates. IIRC at the last meeting they announced that they would accelerate the tapering down of asset purchases so that they would be done in March.
They also like to move slowly which is why they don't just halt the asset purchases and start raising rates. They treat the economy with kid gloves so they don't break it (right or wrong, for better or for worse, that's how it goes).
Basically they can only control inflation in the future, and they believe the inflation we've just seen is a result of the one-off of the pandemic response. Given that the interest rate mechanism affects inflation by increasing unemployment and harming the economy, they don't want to do that until it's necessary.
(I should note that it's theoretically possible to do inflation control by fiscal policy, i.e. mop up some of the spare money by taxation, but that's obviously not going to happen)
My understanding is that increasing interest rates would tame inflation however there will be a slight recession or dip since prices will fall and given the upcoming elections the powers that be want a VERY gradual uptick with minimal economic fallout. You’re damned if you do and damned if you don’t.
I would love to understand why the fed hasn't increased interest rates to counter the rapid increase of inflation..?
The US can't afford it.
With a national debt of 30 trillion dollars, a 1% increase in the interest rate would cost the US an extra 0.3 trillion dollars per year. In other words, an extra 300 billion dollars per year. Looked at in other terms, that's nearly half of the Defense Budget in money 'down the drain'.
The interest rate will never go up to any usable extent until the either the US Dollar or the US Economy (or both) crashes.
> Consumer price inflation rose by 6.8% without seasonal adjustments over the 12 months ended November, the Bureau of Labor Statistics reported Friday.
> Stripping out food and energy, the prices of which tend to be more volatile, inflation rose 4.9% over the same period — the highest level since June 1991.
This is high by recent standards but not too bad by 20th century standards. And at least this time wage inflation is happening as well.
> Several categories saw significant price increases. Gas prices jumped 58.1% over the year ending in November, the biggest jump since April 1980.
.. ah. Yeah, this is much more significant. Oil is up too: WTI about $40 at the end of last year to $70-80. As lots of places have found out, fossil fuels are cheap until they aren't.
High oil prices are quite capable of causing inflation on their own.
The YoY metric for oil is slightly misleading, due to the chaos that was 2020's market[1].
It was at 59.22 on this day in 2019, and now it's at 69.62. That's a significant increase, but it's not the eye-popping 2x jump that the YoY number suggests.
Gas prices, on the other hand, are surprisingly divergent[2].
For all the people in the “transitory camp” here are a few things I would like you to reconsider:
- “underlying supply chain will go back normal” well the way I see it the container owners and everyone downstream have no incentives for doing so. [1]
- China is facing water crisis among many other issues from
energy crisis as well. If the main supplier of US faces crisis it will likely affect US as well. [2]
- and many actually don’t understand this, Fed actually has incentives to get inflation. For many years they spent time to get inflation and recently even accepted they will let it run beyond the benchmark 2%. Part of the argument is Fed currently has no leverage or tools left in an economic downturn given the amount of debt in the balance sheet. A mere 5% raise in interest rate would require interest payment equivalent of another US army. So rate hikes of any substantial measure is out of question without bankrupting US. The easiest way is to inflate the 40 trillion debt away like they did post war in the 40s. [3]
Except US has also hollowed out manufacturing becoming increasingly dependent on rival China (even for defence equipments), has been increasingly losing its sphere of influence (both soft and hard - ask anyone in Africa who wields its soft power there China or US; or look at the Afghanistan fallout), and there is very little bipartisanship left while everyone is busy fighting cultural war.
One can hope at least de globalization is a partial outcome of this post covid realignment if ever one.
China doesn't care about the debt payments. It is about maintaining the relationships in Africa so the countries there will favor China over the US in trade deals for resources.
Before I became a developer, I worked QA in chip fabs (both in northern and southern california) in the 90s to the 00s, the writing was on the wall, so to speak.
None of those links show that the US is dependent upon China for defense equipment, including chips. All they do is tout how little semiconductor fabrication is done in the US.
The US is literally dependent on Asia at large for chip fabrication (among other goods) today. The fabs in Asia are universally constructed/supplied from materials and technology sourced in China - primarily due to the most abundant material inventory (steel, rare earths, etc) worldwide, but also because of cheap labor.
Again, if you're interested in something other than what you've decided, there's Google for you. Good luck with whatever.
1. Actual throughput in our ports is up over previous levels. Its demand that has increased, a combination of redistribution downwards (through better wages, government benefits) and pent up savings. There's already evidence savings are depleted for lower income households (as evidenced by increased credit card balances).
2. Perhaps you could explain why container owners have no incentive to increase their business volume.
3. The US systematically undershot its 2% inflation target for years. It acted more like an upper bound. Its good that its gone over. Just now we've overshot. But we've overshot by a fair margin. So I think they'll pull back as soon as any perceived softness of the real economy has gone away.
> Perhaps you could explain why container owners have no incentive to increase their business volume.
The article I linked does a fairly good job explaining it. Basically if you are a container owner, you can charge 10x the price for containers from Shanghai to Long Island, while the other way it’s almost a loss since it’s returning empty.
The decline in ships waiting just offshore of Los Angeles/Long Beach continues to be touted as a sign that port congestion is easing — despite the fact that the true number of waiting ships has not actually declined.
That link supports the premise, you just chose a specific timeframe which had a small decline, the overall levels for the year are a huge increase:
"Through November, the Port of Long Beach has processed more than 8.6 million TEU, up over 18% from last year and already surpassing the annual record of 8.1 million TEUs set in 2020."
China is bringing nearly 25 1GW nuclear plants online over the next 5 years. They additionally have investments all over Africa for the export of natural resources like coal/oil. I really don't see them falling into crisis over energy.
Merchants don't usually want to lower prices proactively, but it's done all the time because they do not exist in a competitive vacuum.
From inception, container shipping has been plagued by oversupply because of the economies of bigger and bigger boats. That was still true 3 years ago. Shipping businesses were going bankrupt left and right. It is a commodity good with a relatively low cost of entry. If the existing companies don't feel like lowering prices, others will step in and happily take their market share.
Time's too valuable to get into a meaningless discussion about this, but they've had the same incentive for decades. Take a look at the inflation rate for the 30 years 1991-2020: https://fred.stlouisfed.org/series/CPIAUCSL#0
> China is facing water crisis among many other issues from energy crisis as well. If the main supplier of US faces crisis it will likely affect US as well.
China is only 14% of US trade (third place after mexico and Canada) - still a lot but not as big of a player as that sounds
Inflation has been lower and more consistent over the last 39 years (and especially over the last 20 years) than any time in history. If you live in the United States and you're my age or younger, you haven't had to worry about inflation for your whole adult working life.
This doesn't make today's inflation acceptable, it just lets you know how much importance has been put on handling inflation up until now.
Well, I'd argue that inflation has been kept too low, placing burdens on debt-holders and lowering growth, which in my view contributed to the decimation of the middle class.
I'm not qualified to assess that, but I do think that it's hard to balance the needs of wealthy people and wall street with the needs of main street; it's even harder if you don't try to do that balance
you haven't been poor, have you? I have been, and I definitely worried about inflation. In the early aughts ratcheting prices really fucked me over on a 26k salary.
I haven't been poor as an adult. I was definitely poor as a child.
Inflation is different things to different people, just like unemployment numbers are different things to different people and communities. Unemployment may be low, but if you don't have a job, that doesn't matter.
Yes, the top line inflation number can be very misleading for individual experiences.
A recession caused by the government stopping corporate activities. As soon as the restrictions would have been relaxed for good (and I think we can say that we're finally in the clear, even tough Omicron worries (I personally think it will be similar to Delta)), the economy would've restarted just as well.
In times when many (if not most) human deeds are far from being carbon neutral and humanity is in dire need to reduce its footprint, maybe a recession (or more positively coined "degrowth") wouldn't be such a bad thing.
This is the opposite of what is happening. There has been a massive transfer of wealth and income to the middle and lower classes at a rate that exceeds inflation, and that I hope will lead to sustained growth of the middle class.
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[ 2.8 ms ] story [ 162 ms ] threadAnyone taking a deeper dive into the Fed, global markets, QE, China, etc
Btw, this was an interesting read:
https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-...
https://econbrowser.com/
> Unlike in past recoveries, strong demand for goods such as autos, furniture and appliances has driven much of the inflation surge. Prices for services—such as for travel and recreation—have generally climbed much less with softer demand. The holiday season is likely exacerbating these dynamics, said Aneta Markowska, chief financial economist at Jefferies LLC.
We're seeing crazy price growth without a rise in demand for services. But that'll likely change and fuel inflation further as covid restrictions are lifted.
I still believe it is due to the large money printing by the Fed, a total of around 10 trillion disbursed for various programs. We saw inflation in nearly every asset class in our economy, blowing past pre-covid numbers, and now its coming to consumer prices. I just hope we have the political will to do something about it. Unemployment is very low and the Fed is still dragging their feet about maybe 1 or 2 potential raises next year and a slow unwinding of the trillions in assets its built up over the last year
If the Fed's policy was responsible, then we'd see a divergence between inflation rates in European countries and the US. We don't though. European inflation rates (across the board) closely track what's happening in the US.
What we do see is a similar demand reallocation in both portions of the world. Demand has shifted from services to goods, and that increased demand drives inflation.
I remember learning some basic economics in 2019 about how the U.S. learned a valuable lesson from 2008. How they will never make the same mistakes of letting inflation go unchecked because they have tools to work against it. Yet inflation has rapidly scaled to 6.8% (reported). Also, I am keeping supply chain demand in mind but I don't think it excuses the fed's decision to not immediately start curbing high inflation rates. My guess is that people with money are profiting and want to continue profiting until it is no longer sustainable.
This happens all the time with stocks. A stock could get very bubbly and reach an insane valuation to the point people think it will pop! But then it never does, instead it just stops rising and the underlying company eventually catches up to the valuation, until people think it’s a good buy again and start pumping the price even higher to the next leg up. Eventually the stock can never truly pop and go back to the pre-bubble levels because in the time that has passed the company actually did become more valuable.
2008 was a very different scenario, the money that was printed then was forced into a narrow loop within the financial system and just used to sanitise a lot of bad debt away from the banking system.
In some sense, the eventual logic of the last 20 years of massive increases in the total amount of debt circulating, due to loan securitisation, was that that debt would have to be devalued to make it repayable. And here we are.
Source? This doesn’t seem right to me at all.
I'm assuming the next cycle will be a huge win for Republicans for two reasons.
1) Things we saw in this last election. For example, a truck driver won in New Jersey against their senate president with a campaign budget of $153
2) Joe Biden's approval rating the the the high to mid 20's
Biden have just dipped below 40% approval rate and has a lot on his plate with the texan abortion law:
https://fivethirtyeight.com/features/texass-abortion-law-is-...
The problem is we can't raise rates without blowing up the economy, not that it wouldn't stop inflation. It doesn't matter how much money is in the system if you nuke velocity back to near zero.
I'm talking in the medium term here. Because the response to this is in my mind literally a 10-20 trillion dollar stimulus package. THEN we will see inflation.
Asset price inflation will reverse. But that wasn't trickling back to consumer inflation anyway.
Think of it this way. If you had 10x your annual salary to store somewhere, and the values of traditional stores of wealth (e.g., stocks, bonds, and real estate) were seriously stuck in reverse for the foreseeable future, where would you stash your value? Sardines? Bottles of wine?
We forget how young modern finance is, basically since the 1970s. For the first 10 years of that era, both interest rates and consumer inflation increased in tandem. We've built a narrative around that correlation, but what if that narrative is incomplete?
* Aggregate demands isn't too much different from before the pandemic. * Demand for services has fallen into the toilet. * Demand for goods has gone through the roof.
This massive reallocation of resources from one portion of the economy to another has created a situation where demand for goods far outstrips supply. Therefore we have inflation. (Increases in food prices are caused congestion in the labor market.)
This is not about US economic policy. You can see this by looking at inflation rates in Europe (and specifically Germany). These countries have very different economic policies than the US, but their inflation rates pretty much track what's happening in US. Therefore it is a common effect driving inflation in both places.
https://fred.stlouisfed.org/series/M2SL
On the other hand we've had months of prices yo-yoing across the economy, both rising and falling. If it was about the money supply then we would not see price decreases following many increases. (e.g. lumber costs a few months ago.)
We also having diverging demand for goods and services.* If it was just about the money supply, and not a demand imbalance then we'd see increases in both demand and cost for services, and those matching increases don't seem to be there.
*See page point 9, page 12/16 of https://www.brookings.edu/wp-content/uploads/2021/09/COVID-F...
Collapse of the underlying assets that they hold. Bailing out the housing market during the pandemic means the fed holds lots of housing market. The theory is that they will let the assets mature and then pull the money back out to come back to a balance. I'll tell you now, if you believe that's about to happen I've got a bridge to sell you. The US still hadn't done this the day before covid started. Covid is far worse.
>I remember learning some basic economics in 2019 about how the U.S. learned a valuable lesson from 2008.
The irony is that the financial crisis at least help the USA today. Compare this to other countries like Canada and we are far worse off than the USA during the financial crisis.
>How they will never make the same mistakes of letting inflation go unchecked because they have tools to work against it.
Those tools are maxed out.
> Yet inflation has rapidly scaled to 6.8% (reported).
The fed made the claim that they would run inflation hotter because they didnt hit target of 2% during covid. The problem? They had to act by now. They've past that threshold of coming to parity.
>Also, I am keeping supply chain demand in mind but I don't think it excuses the fed's decision to not immediately start curbing high inflation rates. My guess is that people with money are profiting and want to continue profiting until it is no longer sustainable.
The metric to look at was GDP. When GDP was 6.7%, inflation was at 5.4% or so. The big problem is that gdp dropped to 2.1% and recession metrics spiked.
If the fed increases rates while gdp is dropping. recession is certain. It's too late for them to undo what they did bailing out the housing market. It would seem counterproductive to spend all this money to prevent housing from crashing just to let it crash anyway.
So we're stuck. Inflation is going sky high. It looks to be about 40% locked in right now over the next few years.
You thought minimum wage wasnt keeping up? This is literally everyone except the rich getting much poorer soon.
It's a super complex issue that even the Fed probably has yet to understand. So I certainly don't as well. Many consequences could happen instead.
Flipside, what just happened? The government effectively owns a huge portion of land again. Sure someone else is holding the title but really the government owns it. The banks/funds sold it to the government because they know they dont want to hold it.
What does communism look like? The government owns everything.
So is many others. It's possible to look at the numbers and make the assumption the central banks won't reverse this. Afterall that basically never happens in history.
M0 money supply was increased about 100%. M1 was increased by about 400% Those arent direct relationships, M2 on the otherhand... the bump from covid and increase in rate clearly denotes about 40% inflation locked in. It wont show up all in 2022. It'll spread out over time. But worse yet, what happens in between?
- Wages in the US increased 9.8% in October of 2021 over the same month in the previous year. https://tradingeconomics.com/united-states/wage-growth
- The Estimate for Q4 GDP growth is 8.7%. https://www.atlantafed.org/cqer/research/gdpnow
Our entire system would quickly be insolvent at a rate that would have seemed low 20 years ago.
One reason is that they are still purchasing assets in order to goose the economy. It doesn't make any sense to be revving the economy with one hand while tamping it down with the other plus the point of the buying is to artificially depress interest rates. IIRC at the last meeting they announced that they would accelerate the tapering down of asset purchases so that they would be done in March.
They also like to move slowly which is why they don't just halt the asset purchases and start raising rates. They treat the economy with kid gloves so they don't break it (right or wrong, for better or for worse, that's how it goes).
Basically they can only control inflation in the future, and they believe the inflation we've just seen is a result of the one-off of the pandemic response. Given that the interest rate mechanism affects inflation by increasing unemployment and harming the economy, they don't want to do that until it's necessary.
(I should note that it's theoretically possible to do inflation control by fiscal policy, i.e. mop up some of the spare money by taxation, but that's obviously not going to happen)
I can’t help but assume that this is a fairy dogmatic, rather than a nuanced response.
Will increased interest rates unclog ports and reduce transportation costs? Will it reduce gas prices? Will it shift spending from goods to services?
It is necessary to look at the components of the CPI to see where the increases came from instead of looking at just the headlines.
The US can't afford it.
With a national debt of 30 trillion dollars, a 1% increase in the interest rate would cost the US an extra 0.3 trillion dollars per year. In other words, an extra 300 billion dollars per year. Looked at in other terms, that's nearly half of the Defense Budget in money 'down the drain'.
The interest rate will never go up to any usable extent until the either the US Dollar or the US Economy (or both) crashes.
> Stripping out food and energy, the prices of which tend to be more volatile, inflation rose 4.9% over the same period — the highest level since June 1991.
This is high by recent standards but not too bad by 20th century standards. And at least this time wage inflation is happening as well.
> Several categories saw significant price increases. Gas prices jumped 58.1% over the year ending in November, the biggest jump since April 1980.
.. ah. Yeah, this is much more significant. Oil is up too: WTI about $40 at the end of last year to $70-80. As lots of places have found out, fossil fuels are cheap until they aren't.
High oil prices are quite capable of causing inflation on their own.
It was at 59.22 on this day in 2019, and now it's at 69.62. That's a significant increase, but it's not the eye-popping 2x jump that the YoY number suggests.
Gas prices, on the other hand, are surprisingly divergent[2].
[1]: https://fred.stlouisfed.org/series/DCOILWTICO
[2]: https://fred.stlouisfed.org/series/GASREGW
- “underlying supply chain will go back normal” well the way I see it the container owners and everyone downstream have no incentives for doing so. [1]
- China is facing water crisis among many other issues from energy crisis as well. If the main supplier of US faces crisis it will likely affect US as well. [2]
- and many actually don’t understand this, Fed actually has incentives to get inflation. For many years they spent time to get inflation and recently even accepted they will let it run beyond the benchmark 2%. Part of the argument is Fed currently has no leverage or tools left in an economic downturn given the amount of debt in the balance sheet. A mere 5% raise in interest rate would require interest payment equivalent of another US army. So rate hikes of any substantial measure is out of question without bankrupting US. The easiest way is to inflate the 40 trillion debt away like they did post war in the 40s. [3]
[1] https://medium.com/@ryan79z28/im-a-twenty-year-truck-driver-...
[2] https://thehill.com/opinion/energy-environment/584266-americ...
[3] https://www.lynalden.com/inflation/
One can hope at least de globalization is a partial outcome of this post covid realignment if ever one.
Before I became a developer, I worked QA in chip fabs (both in northern and southern california) in the 90s to the 00s, the writing was on the wall, so to speak.
Do a casual google search.
https://www.marketplace.org/2021/04/21/shortage-of-semicondu...
https://en.wikipedia.org/wiki/List_of_semiconductor_fabricat...
https://www.businessinsider.com/why-us-doesnt-make-chips-sem...
https://www.bloomberg.com/graphics/2021-chip-production-why-...
et al.
Again, if you're interested in something other than what you've decided, there's Google for you. Good luck with whatever.
The article I linked does a fairly good job explaining it. Basically if you are a container owner, you can charge 10x the price for containers from Shanghai to Long Island, while the other way it’s almost a loss since it’s returning empty.
The decline in ships waiting just offshore of Los Angeles/Long Beach continues to be touted as a sign that port congestion is easing — despite the fact that the true number of waiting ships has not actually declined.
https://twitter.com/typesfast/status/1466424994670518279
Not true in general. The port of Long Beach is down 5% year-on-year (the third month in a row that is down compared with 2020) [0].
[0] https://gcaptain.com/amid-record-breaking-year-port-of-long-...
"Through November, the Port of Long Beach has processed more than 8.6 million TEU, up over 18% from last year and already surpassing the annual record of 8.1 million TEUs set in 2020."
1000 GWatts... Now that would make a dent.
From inception, container shipping has been plagued by oversupply because of the economies of bigger and bigger boats. That was still true 3 years ago. Shipping businesses were going bankrupt left and right. It is a commodity good with a relatively low cost of entry. If the existing companies don't feel like lowering prices, others will step in and happily take their market share.
Time's too valuable to get into a meaningless discussion about this, but they've had the same incentive for decades. Take a look at the inflation rate for the 30 years 1991-2020: https://fred.stlouisfed.org/series/CPIAUCSL#0
China is only 14% of US trade (third place after mexico and Canada) - still a lot but not as big of a player as that sounds
https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...
Still a lot of money being printed, but not 10s of Trillions.
This doesn't make today's inflation acceptable, it just lets you know how much importance has been put on handling inflation up until now.
Inflation is different things to different people, just like unemployment numbers are different things to different people and communities. Unemployment may be low, but if you don't have a job, that doesn't matter.
Yes, the top line inflation number can be very misleading for individual experiences.
The entire 19th century would take issue with that statement.
We've had about as much inflation since 1990, not including current pandemic related shenanigans, as they had in that entire century.
This is exactly what is happening. The motivations may be partly^ different, but the result is one of the wealth inequality gap growing.
^I'm not sure how it could be incidental, given the obvious consequences.
Am I missing something in the article? Which key measure?
The only other time 1982 is measured in this article is the following:
> Food prices in restaurants jumped 5.8%, the biggest rise since January 1982.