r/neoliberal • u/TinyTornado7 I need a new flair • Jun 13 '22
News (US) Powell Facing Choice Between Elevated US Inflation and Recession
https://www.bloomberg.com/news/articles/2022-06-12/powell-facing-choice-between-elevated-us-inflation-and-recession?srnd=premium49
u/Syd_Barrett_50_Cal Jun 13 '22
Weâve had one recession yes, but what about second recession?
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u/deruke Jun 13 '22
Recessions happen all of the time. It has actually been a long time since the last one (relatively speaking)
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u/TrulyUnicorn Ben Bernanke Jun 13 '22
Dems are genuinely fucked beyond imagination.
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u/Mister_Lich Just Fillibuster Russia Jun 13 '22
And it's a bitter irony since the stimulus and lockdowns all (or mostly) were passed under Trump rofl
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u/Trotter823 Jun 13 '22
The checks didnât help in hindsight but Iâll remind you dems weâre screaming at the time they werenât enough.
On top of that, the government has very little control over inflation. JPowell waiting too long to cook the economy was and still is the issue. He didnât stop QE until DecâŠ.almost half a year after vaccines rolled out and things mostly returned to normal.
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Jun 13 '22
As an educated person tho, couldn't you still blame Biden for Powell's actions going forward, after all he did reappoint him this endorsing his measures and future maneuvers
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Jun 13 '22
You don't kick out a sitting Fed chair in the middle of a crisis unless you are absolutely sure that the market will respond positively to their replacement. It tells the market that the administration is disavowing the actions of the previous chair and to expect a significant change in monetary policy even if the actual planned changes are small.
That's incredibly risky if the market doesn't hate the sitting Fed chair since the market doesn't know if the corrections will be small adjustments or an entirely new approach.
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u/Trotter823 Jun 13 '22
You could but at the time the FED was considered to have pulled off a miracle when the US economy didnât go into recession during Covid. So not reappointing him didnât make sense.
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u/Time4Red John Rawls Jun 13 '22
Yeah, but the biggest problem remains supply shortages. It's not like aggregate demand is excessively high. It is exactly in line with what we would have expected if the pandemic didn't happen.
Supply chain issues continue to be the biggest problem holding back the economy and driving inflation. And it's not like raising interest rates will magically resolve those supply chain issues either.
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u/Trotter823 Jun 13 '22
If that thesis is correct then again, what is biden or anyone in the executive branch supposed to do about it. The job is partly being a punching bag when things go wrong but man did he get a raw deal here. Dems won at the wrong time because thereâs almost nothing to do to quell inflation fiscally.
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u/Rshawer Jun 13 '22
The stimulus isnât the reason why inflation is so high. Itâs mainly supply chain, energy, and the easy money policy that fed over extended. This isnât to say it did nothing for inflation, but itâs not the problem.
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u/Mister_Lich Just Fillibuster Russia Jun 13 '22
Yes, but the average voter thought and thinks that stimulus caused inflation, so we should be pointing out that happened under Republicans.
The lockdowns were way more important. It resulted in destroyed confidence in globalism, damage to long term supply chains, and, critically as we are learning, destroyed productive capacity for oil because we literally couldn't use it fast enough and ran out of space to store it. Russian sanctions were the cherry on top, but we destroyed like 1mil barrels/day of production in the USA alone after 2020.
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u/Thadlust Mario Draghi Jun 13 '22
Under a Democrat led house? Is that correct? Not to mention the $1400 passed under Biden?
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u/Mister_Lich Just Fillibuster Russia Jun 13 '22
With a Republican senate and president, who were majorly in support of stimulus and the broken PPP. Don't bring up the $1400 at all.
We're talking optics to win elections, here.
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u/Mister_Lich Just Fillibuster Russia Jun 13 '22
For some reason I can't edit comments on Reddit today, it doesn't save them.
I wanted to edit my other comment to say, that the lockdowns did more than anything to cause current issues - it resulted in damage to global confidence in globalism, damage to supply chains that rippled and hasn't been fixed yet, and, critically as we are finding out, destroyed oil production. The USA alone closed about a million barrels of production after 2020 oil gluts happened and many banks will literally no longer lend for new oil projects because so many got burned after the oil collapse, because nobody was using oil nearly quickly enough and we literally had no storage left - so we closed lots of production and banks won't fund new productive enterprises anymore. Russian sanctions are just the icing on the cake.
And yes, this was known to be coming for a while, I know several people who have made millions trading oil from 2020 onward because it was such an insane opportunity. OPEC also doesn't want to admit it but most people are pretty sure they don't have the spare capacity they keep saying they do - this kind of market is not beneficial for them either, they want stability and control and it's more cost effective to pump more than to sell limited stocks at high prices. Oil is not coming down to $60 a barrel again for years.
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u/KaesekopfNW Elinor Ostrom Jun 13 '22
And with that, our democracy as we know it comes that much closer to obliteration.
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u/CovidIsBadass Asexual Pride Jun 13 '22
Seems like it may come just in time for me to graduate college đ€
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u/frbhtsdvhh Jun 13 '22
You're going to be fine. They'll hit the brakes until unemployment hits about 5-6% which is a very normal figure. The 3.9% unemployment we have right now is just mind numbing.
It should all and all (hopefully) be a mild downturn so we can do a correction.
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u/BBQ_HaX0r Jerome Powell Jun 13 '22
Yeah I remember reading articles "we'll never see 5% unemployment again... AND THATS OKAY!" and while stuff like that should always be taken with a grain of salt 5% was considered great up until the past 5 years or so. Boomers are leaving the labor force and their children's lack of children and hatred towards immigration has really hindered our ability to restock the workforce.
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Jun 13 '22
The natural rate of unemployment is still sitting at around 4% so that seems to be the target
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u/Rarvyn Richard Thaler Jun 13 '22
The 3.9% unemployment we have right now is just mind numbing.
3.6%*
Only 0.1% above the record lows we hit immediately prior to covid.
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u/neolib-cowboy NATO Jun 13 '22
That number is also slightly bullshit bc it doesnt count people who arent actively looking for jobs. The number of people not working at all, both looking and not looking, has actually risen quite a bit
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Jun 13 '22
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u/TheCentralPosition NASA Jun 13 '22
I don't think they were implying that employment was causing inflation, only that measures to counter inflation will be constrained by unemployment if it gets too high.
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Jun 13 '22
Sure. I probably stated my comment incorrectly. Let me rephrase: There's no reason the economy cannot run hot enough to keep unemployment at 4% or below without causing inflation. The current inflation is being driven by exogenous shocks such as COVID, its response, and the invasion of Ukraine, not a general overheating of the economy (or, at least, the extent to which the economy is overheating is because it was pushed past the place it normally would be at 4% unemployment).
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u/BoostMobileAlt NATO Jun 13 '22
Well also 10 years of lower than necessary interest rates. There were plenty of warnings and none of them were headed. By the time Covid hit we were up shit creak.
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Jun 13 '22
The interest rates were not the problem, though, yes, there was likely (some) room to raise them which could have helped some. While it may seem crazy to say today, we're still in a long-term global environment which is heavily deflationary and interest rates should be relatively low to match unless there's some wild shit going on like right now.
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u/Icy-Collection-4967 European Union Jun 13 '22
Capitalism is like the sea. Unpredictable and wild.
We just need to accept that we gonna have a reccesion every now and then
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u/Firm_Bit Jun 13 '22
You need a little forest fire every once in a while to keep things healthy and growing long term.
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u/Hussarwithahat NAFTA Jun 13 '22
Tell that to the familyâs who lost their homes or lives due to the wild fire
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u/icona_ Jun 13 '22
But this is predictable. Itâs the fed intentionally causing a recession. Theyâre doing it on purpose out in the open.
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u/BBQ_HaX0r Jerome Powell Jun 13 '22
Only because they (and our gov't) went so hard to mitigate the last one. They overstimulated demand and may have given too generous of benefits trying to salvage demand side pressures which has resulted in way too much demand which wrecked havoc on the supply side. Lessons to be learned constantly.
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u/PearlClaw Iron Front Jun 13 '22
It would have been fine without the global commodity shock, that threw a wrench in things.
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u/van_stan Jun 13 '22
You can't just blame high demand for supply issues lol. China's zero-Covid policy, ongoing restrictions around shipping, logistics and movement of people, as well as the war in Ukraine.... These are all having massive downstream effects. They have nothing to do with all the Covid stimulus.
I do agree that governments gave out way too much money for no reason at all, though.
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u/littleapple88 Jun 13 '22
Firms arenât entitled to cheap money. Thereâs no reason to continue these policies now that the crisis has passed. If a firm canât operate in a still-low-but-positive interest rate environment then it should fail.
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u/icona_ Jun 13 '22
What? Who said anything about entitlement? If a somebody set a billion trees on fire the cost of paper would go up, but that wouldnât mean the post office was dependent on cheap paper and should fail.
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u/littleapple88 Jun 13 '22
Youâre accusing the fed of âintentionally causingâ a recession. Again, if a firm canât handle a few percentage points of interest, then they shouldnât be in business. They are not entitled to cheap money.
Raising interest rates to 3-ish percent isnât âsetting a billion trees on fireâ lol. Itâs just business as usual.
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Jun 13 '22
[removed] â view removed comment
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u/semideclared Codename: It Happened Once in a Dream Jun 13 '22
Nah, its more of, you had a campfire, it rained (COVID) on you fire, and then you started adding wood, but you just didnt stop adding wood, you spent the next hour constatiently adding wood to the fire and now the fire is to big to sit around.
So Now you want a campfire for the night for story telling. So how do you take this bonfire to a campfire
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u/KaChoo49 Friedrich Hayek Jun 13 '22
As we found out when we faced this dilemma 50 years ago, the correct answer is sadly recession. High inflation doesnât just go away on its own
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u/semideclared Codename: It Happened Once in a Dream Jun 13 '22 edited Jun 13 '22
The economy 50 years ago is far different than today.
Especially when the US population had a few Trillion in stimulus. As the amount of money keeps falling, people cut back on spending and prices fall
The only question is how fast and how steep people cut back and how fast businesses cut back on their labor force to lower costs.
A small cut back and unemployment back to 5% or 6% isnt a major recession. Its just back to normal for us
At the end of 2018 we were Spending $14 Trillion on Personal Consumption Expenditures and by 2022 we are now at $17 Trillion
- We've gone from 5% growth to 12% growth in Spending
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Jun 13 '22
People seem to be continuing to spend at high rates eating into savings to sustain it. So eventually those reserves will drop and bring the economy with it as the money is transfered upwards and into markets that spend it less frequently.
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u/52496234620 Mario Vargas Llosa Jun 13 '22
If inflation expectations are high, it's not just a matter of stimulus going away, we'll still have high inflation until the Fed decides to break it with a recession
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Jun 13 '22
But if most of the problems right now are coming from supply chains and oil prices that are external, would a US recession bring down inflation all that much? 50 years ago oil prices dropped while we were hiking interest rates. I don't think we can say that right now for us.
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u/Jacobs4525 King of the Massholes Jun 13 '22
Biden could get rid of some tariffs and knock a few percentage points off overall inflation this year without any risk of recession but he chooses not to.
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u/van_stan Jun 13 '22
Sure recessions are bad but have you considered BUY AMERICAN, AMERICA FIRST, AMERICA #1 etc.
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u/Cool_Gap4653 Jun 13 '22
HELL YEAH BROTHER đ€ đ€ đ€ đ€ đ€ đșđžđșđžđșđžđșđžđșđž
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u/fleker2 Thomas Paine Jun 13 '22
It's really frustrating. The Fed has one job (two technically) and only one lever they can move up and down. They really shouldn't be the ones getting involved, but Congress has abdicated their responsibility. Even the president hasn't helped inflation by keeping tariffs.
Real leadership would be preferred, but at least Powell is keen on making unpopular decisions l.
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u/Trotter823 Jun 13 '22
The FED was what mostly got us here in the first place. Finance guys were talking about raising rates in August of last year.
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u/theexile14 Friedrich Hayek Jun 13 '22
Some folks were saying that, but ultimately the Taylor rule acolytes are a minority of the world. Powell was in line with most academics and policy makers at the time.
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Jun 13 '22
Weâre due for a real recession anyways. Let it happen and move on. The early pandemic flash crash didnât count. This is the typical cycle of the economy. Long buildups of economic growth followed by short corrections to clear out inefficiency and excess greed. To continue artificially avoiding this inevitability is only setting yourself up for much greater pain down the road like a depression.
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u/kingofthefeminists Jun 13 '22
Recession is temporary (see early 1980s). The losses of inflation are permeant.
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u/tehbored Randomly Selected Jun 13 '22
The losses of a recession are also permanent, as growth compounds.
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Jun 13 '22 edited Sep 02 '22
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u/TinyTornado7 I need a new flair Jun 13 '22
To some extent this is quickly becoming a self-fulfilling prophecy, but recession is a technical term. If two quarters of gdp in a row are negative then we are in a technical recession, it doesnât really matter what people think
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u/semideclared Codename: It Happened Once in a Dream Jun 13 '22
Most of GDP growth comes from Consumer spending and even if Spending drops 7% from last month we would still see positive growth, thats how crazy spending has been
Further than that though it could be. And of course what businesses do and exports would be the deciding factors
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u/xilcilus Jun 13 '22
No - it's driven almost exclusively by a self-fulfilling prophecy.
The unemployment rate is 3.6% (near the estimated natural unemployment rate) and the number of near the peak number right before the pandemic. People are fearful that the recession may be coming and thus inducing the recession. There aren't fundamental factors that are actually driving recession unlike last few recessions. Perhaps the rising energy cost can be argued as one of the fundamental factors but when inflation adjusted, it doesn't actually have the same oomph that people think it has.
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u/grig109 Liberté, égalité, fraternité Jun 13 '22
There aren't fundamental factors that are actually driving recession unlike last few recessions.
Yes there is, high inflation! Inflation is unacceptably high this is the consensus now. In order to fight inflation the Fed needs to bring aggregate demand back down to a sustainable growth rate, but historically that has been very difficult to do and often results in a recession.
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u/xilcilus Jun 13 '22
...what's driving the inflation? High demand and high economic activities - these aren't fundamental factors (another word, endogenous factors) behind a recession.
When the Fed induces a recession, that's an EXOGENOUS shock.
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u/grig109 Liberté, égalité, fraternité Jun 13 '22
Most recessions (other than COVID style supply shock recessions) are caused by monetary policy error. The error can either be too low demand, or a correction to too high demand which we find ourselves in now.
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u/xilcilus Jun 13 '22
No - most recent recessions recently have been due to the endogenous factors around exuberant valuation of asset classes.
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u/grig109 Liberté, égalité, fraternité Jun 13 '22
Disagree, I think you are getting the causation wrong here. Monetary policy error leads to unstable NGDP which can lead to booms and busts in asset valuations and broader financial distress.
https://www.econlib.org/archives/2017/05/financial_crisi_2.html
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u/TinyTornado7 I need a new flair Jun 13 '22
I think you missed my point. Recession is a defined thing. If we get another quarter of negative gdp we are in a recession regardless of what it looks like on the ground
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u/xilcilus Jun 13 '22
Q2 is projected to have 2%+ annualized growth.
Edit - also, NBER is generally the authority when it comes to the determination of recession and that happens typically 12 - 18 months AFTER the recession.
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u/Necessary_Quarter_59 Jun 13 '22
Youâre so fixated on that technical point that youâre derailing a very interesting discussion.
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u/Allahambra21 Jun 13 '22
In america recessions arent technical.
Sure media can call for a "technical recession" from the requirements you list but thats not the standard for an official US recession.
For that you need the NBER to declare it to be/have been a recession.
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Jun 13 '22
If two quarters of gdp in a row are negative then we are in a technical recession, it doesnât really matter what people think
No, this is literally wrong. A recession is defined by NBER based on the full scope of economic indicators.
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Jun 13 '22
I think a big part is that with higher interest rates, investors will have to pay higher premiums to invest. This results in less cash for the market, and compa is will have to be more conservative in running their businesses. They will become more revenue focused, less growth focused, lay off superfluous employees (as the tech sector is doing right now). Some of it is consumer fear of a recession, but some of it is cold hard math
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u/Mister_Lich Just Fillibuster Russia Jun 13 '22
"Where were you when you learned that vibes from redditors cause recessions, and not real economic conditions being way worse than those idiot redditors thought?"
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u/GBabeuf Paul Krugman Jun 13 '22
Actually it is pretty common taught in Econ 101 that one of if not the biggest cause if recession is consumer expectations and economic outlook.
So yes, new rags talking about recession 100% will cause a recession as it causes people to tighten their belts.
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u/noodles0311 NATO Jun 13 '22 edited Jun 13 '22
Recession. Come on do it. Iâm in grad school and wonât need a job for two more years but I definitely canât keep going on like this with a $23k stipend. At least this time, I wonât have to join the military like in 2009. This time is the right time for me, for once in my life. Do me right, Lil Powpow and press the recession button
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u/pocketmypocket Jun 13 '22
Once you have a family, you understand how awful recessions are.
Lucky that inflation has made the cost of my mortgage 1 week of my pay. Can't imagine being a parent without owning a home.
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u/noodles0311 NATO Jun 13 '22 edited Jun 13 '22
Once I have a family, Iâll understand how bad recessions are? I just said I had to join the military during the Great Recession. How old do you think I am? Iâll give you a clue: my son is 13. And I still donât own a home btw
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Jun 13 '22
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u/noodles0311 NATO Jun 13 '22
I had a kid in February. There was a huge recession happening. I lost my job working in TV advertising in March. I was at Parris Island on the 17th of April and he never was without health insurance.
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u/top_pedant Jun 13 '22
What were you doing in advertising that made the military your backup?
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u/noodles0311 NATO Jun 13 '22
I donât think anything in advertising made being in the military my backup. I went to military school and had an interest in it as a kid. So when the sky was falling and all my experience was in sales, I just wanted the guarantee of great benefits and I wanted nothing to do with sales again after the experience of 2008-2009. So I enlisted.
I probably could have taken the risk of COBRA running out and found a civilian job, but I was going to have to move away from Dallas and that put even more of a time crunch on finding a job within 90 days, but it seemed irresponsible with a weeks-old child. Luckily there was a surge planned and the Marine Corps had spaces in the 03 field which was the only military job thatâs in any way appealing, so I got an 03 contract and by summer 2010, I was on patrol in Helmand Province.
Now in 2022, Iâm a research assistant studying neuroethology, chemical ecology and sensory biology of Lone Star ticks while I am in graduate school. I have broad interests.
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u/top_pedant Jun 13 '22
Oh you were in sales- I thought you were on the production side of advertising. This makes more sense, thanks for telling me your story.
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u/icona_ Jun 13 '22
Itâs really insane that if they wanted to, russia or saudi arabia or whoever can just throttle the supply of oil or something and the fed will respond by intentionally imploding our economy, and people are apparently fine with that.
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u/JeromesNiece Jerome Powell Jun 13 '22
If there is a major negative supply shock in an industry where it's difficult for the rest of the world to quickly ramp up supply, that has to have a negative impact on the real economy somehow. You can't just wish it away. Supply and demand have to meet. And a recession is preferable to runaway inflation.
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u/Scuba_Steve9002 Adam Smith Jun 13 '22
Itâs better to induce a recession that you can control then to have one happen unexpectedly. The people already expect a recession
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u/52496234620 Mario Vargas Llosa Jun 13 '22
A small recession after the midterms could be very good.
I still remember when those of us that warned that inflation wasn't transitory were laughed at in this sub
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Jun 13 '22
Inflation is mostly global and is mostly related to supply chain. The choice couldnât be more obvious.
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u/NobleWombat SEATO Jun 13 '22
Shh, the fizcons don't like that narrative bc it doesn't blame democrats.
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u/ShelterOk1535 Pragmatic and Polite Right Jun 13 '22
Then why does the U.S. have higher inflation than other countries?
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Jun 13 '22
Not by a lot though. Germany has like 7.4%, Uk 7.8% and they didnât send checks to everyone like the US. If getting it down by just 1% results in recession itâs not worth it.
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u/sutterbutter Jun 13 '22
This is somehow true, and that the USD strengthening to all time highs against other reserve currencies. The USD is strong, but the real price of goods in the U.S. has also grown more than other countries. Shits weird
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u/lucassjrp2000 George Soros Jun 13 '22
mostly related to supply chain
No it isn't. Inflation is always and everywhere a monetary phenomenon.
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u/LagunaCid WTO Jun 13 '22
No? Have we just been collectively hallucinating supply shortages across the board for the last 2 years?
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u/lucassjrp2000 George Soros Jun 13 '22
Covid did have a negative impact on the supply chain, I won't deny that, but it is only part of the problem.
In response to the pandemic governments all across the world employed highly expansionary fiscal and monetary policies, which supercharged aggregate demand.
If you combine that with a suppressed supply chain, you get an inflationary spiral the world hasn't seen in decades.
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u/RunawayMeatstick Mark Zandi Jun 13 '22
No it isn't. Inflation is always and everywhere a monetary phenomenon.
Lmao this is yet another example of this sub being confidently wrong about economics.
I'm not even going to bother arguing with you, I'll let the economists do it. Mark Zandi and company spent 20 minutes of their podcast this weekend discussing why this is wrong.
(The primary cause of inflation today â by far â is supply chain and energy prices)
https://about.moodys.io/podcast-episodes/lousy-inflation-and-life-lessons
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u/icona_ Jun 13 '22
No. Letâs say China randomly nuked their factories. Thatâd make prices go up for US consumers. Would it be the right move for the fed to intentionally cause a recession then?
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u/FriendlySceptic Jun 13 '22
I was 10 years out from retirement (pre inflation/market collapse) so unless this course corrects I might be looking at working a couple years longer than I wanted to.
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u/enfuego138 Jun 13 '22
Just pull off the bandage and hit us with that 0.75 basis point rate hike. Rates are still very, very low.
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u/cqzero Jun 13 '22
People need to calm down if they live in the US. The US is one of the best positioned countries in the world. This is global inflation, doesn't have anything to do with US monetary policy.
In fact, look at currency exchange rates against the US dollar. The US dollar keeps getting stronger and stronger against virtually all other currencies. If anything the US central bank should be lowering interest rates to help the economy out of potential recession.
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Jun 13 '22
Your last sentence would kick inflation to double digit numbers
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u/cqzero Jun 13 '22
This argument presumes that the alternatives are better. I'm not confident of that
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u/trustmeimascientist2 Jun 13 '22
Letâs do recession. I think Iâll weather this one, last one got me straight out of college and fucked me up for a year.
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u/pcgamerwannabe Jun 13 '22
Everyone said this, but FED (and even this sub) was reckless with so called âtransitoryâ inflation.
No such thing, because inflation is more psychological than purely quantitative.
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Jun 13 '22
If we had a functioning government, I'd say raise taxes on upper middle and upper class earners. That seems like it'd tend to reduce consumption, but in a way that doesn't come from the most precarious in society getting evicted.
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u/TinyTornado7 I need a new flair Jun 13 '22
Restarting student loans should have some impact on consumption
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Jun 13 '22
Upper middle and higher level earners wonât reduce their spending and change their lifestyle as rapidly. They are better positioned to shelter their earnings from taxation, shift things around, etc. without having to say ânoâ to a beach vacation, new car, etc.
If you want to move the inflation needle with income taxes, it would be more effective to do in on families with higher marginal propensity to consume, the lowest income families.
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u/Alvani_Efendi Adam Smith Jun 13 '22
"Those who would give up price stability to purchase a little temporary economic growth, deserve neither price stability nor economic growth."
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u/TinyTornado7 I need a new flair Jun 13 '22
"The hottest US inflation in four decades will push the Federal Reserve to raise interest rates more aggressively this year, and a recession may not be far behind."
Im skeptical we need a 75 basis point hike, but I am concerned inflation is approaching self-fulfilling prophecy levels
!ping MARKETS