Largely agree with you and Krugman, even though Krugman's opinions are always tinged with Democrat Party spin, whereas yours are entirely objective. 🙂
Although the data looks pretty good now, I still don't think we should be spiking the ball in the end zone just yet ... if we get 2-3 more months of these continuing trends in the data, we might be able to declare victory. Interesting that China has recently begun to experience deflation in some quarters, and that's worrisome..
BTW an inflation rate of approximately 3% means that $1,000 today will be worth only a little over $500 20 years from now in today's purchasing power. So, even if inflation is 3%, wages need to exceed 3% growth each year just to maintain standards of living. I don't think we've be able to do that for quite a while; pre pandemic we did for a while ...
I agree that it is possible that over target inflation may persist for some time yet, but It's also possible that we could slip into recession. [The 5-and 10-year TIPS. are below target, which is hard to take literally, except as including some tail risk of recession. The Treasury really ought to give us a 1-, 2-, and 3-year TIPS!] I'd prefer the Fed to make a small reduction in the EFFR to be on the safer side.
As for wages, two points: 1) We really do not have good data on wages; BLS produced only unit value indices, which can be affected by how many higher or lower earning workers enter or leave employment. 2) If the Fed can continue to avoid recession (and there is no reason that is should not) wages should have no trouble more than keeping up. Recession is the threat to wages, not on-target inflation. 3) Real wages over time depend on real factors like investment (hence low deficits) and growth of high-productivity sectors (hence R&D and merit-based immigration).
The persistent inflation has been shelter inflation which is a direct result of the Trump Tax Cuts and Zoom class excess savings from lockdowns AND that is the inflation that Fed rate hikes put the brakes on…so Fed rate hikes should have happened earlier than 3/2022. The other inflation was clearly transitory from Covid supply chain disruptions and unprecedented weather events in TX/LA and Putin. Btw, Katrina exacerbated inflation in 2005/06 but that same supply shock made it appear inflation was subsiding in late 2006 but energy prices never actually declined from the pre-Katrina prices…so it was a head fake that in part led to the Financial Meltdown. So Fed rates should have never plateaued in 2006 because inflation was getting worse but energy prices made it appear to be declining.
Yes earlier. I take September 2021 because that was when the TIPS expectations went above target. My guess is that would have allowed the Fed to raise the EFFR less aggressively, but inflation would have turned around sooner and EFFR would be on the way down by now.
Going by the definition of words, inflation was not part of the dynamic. It was simply a myriad of antitrust violations. We should all be demanding this administration prosecute them
Fron a coy commentator:
Largely agree with you and Krugman, even though Krugman's opinions are always tinged with Democrat Party spin, whereas yours are entirely objective. 🙂
Although the data looks pretty good now, I still don't think we should be spiking the ball in the end zone just yet ... if we get 2-3 more months of these continuing trends in the data, we might be able to declare victory. Interesting that China has recently begun to experience deflation in some quarters, and that's worrisome..
BTW an inflation rate of approximately 3% means that $1,000 today will be worth only a little over $500 20 years from now in today's purchasing power. So, even if inflation is 3%, wages need to exceed 3% growth each year just to maintain standards of living. I don't think we've be able to do that for quite a while; pre pandemic we did for a while ...
I agree that it is possible that over target inflation may persist for some time yet, but It's also possible that we could slip into recession. [The 5-and 10-year TIPS. are below target, which is hard to take literally, except as including some tail risk of recession. The Treasury really ought to give us a 1-, 2-, and 3-year TIPS!] I'd prefer the Fed to make a small reduction in the EFFR to be on the safer side.
As for wages, two points: 1) We really do not have good data on wages; BLS produced only unit value indices, which can be affected by how many higher or lower earning workers enter or leave employment. 2) If the Fed can continue to avoid recession (and there is no reason that is should not) wages should have no trouble more than keeping up. Recession is the threat to wages, not on-target inflation. 3) Real wages over time depend on real factors like investment (hence low deficits) and growth of high-productivity sectors (hence R&D and merit-based immigration).
The persistent inflation has been shelter inflation which is a direct result of the Trump Tax Cuts and Zoom class excess savings from lockdowns AND that is the inflation that Fed rate hikes put the brakes on…so Fed rate hikes should have happened earlier than 3/2022. The other inflation was clearly transitory from Covid supply chain disruptions and unprecedented weather events in TX/LA and Putin. Btw, Katrina exacerbated inflation in 2005/06 but that same supply shock made it appear inflation was subsiding in late 2006 but energy prices never actually declined from the pre-Katrina prices…so it was a head fake that in part led to the Financial Meltdown. So Fed rates should have never plateaued in 2006 because inflation was getting worse but energy prices made it appear to be declining.
Yes earlier. I take September 2021 because that was when the TIPS expectations went above target. My guess is that would have allowed the Fed to raise the EFFR less aggressively, but inflation would have turned around sooner and EFFR would be on the way down by now.
Going by the definition of words, inflation was not part of the dynamic. It was simply a myriad of antitrust violations. We should all be demanding this administration prosecute them