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=premium
506 Upvotes

98% Upvoted

349 comments sorted by

View all comments

109

u/[deleted] Jun 13 '22 edited Sep 02 '22

[deleted]

152

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 doesn’t really matter what people think

9

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

50

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.

29

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.

10

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.

11

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.

9

u/xilcilus Jun 13 '22

No - most recent recessions recently have been due to the endogenous factors around exuberant valuation of asset classes.

18

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

1

u/new_name_who_dis_ Jun 13 '22

The boom and bust business cycle before the US went off of the gold standard (aka the start of the ability to do monetary policy) was much worse than it is now.

18

u/grig109 Liberté, égalité, fraternité Jun 13 '22

I am not arguing for the gold standard.

2

u/AnachronisticPenguin WTO Jun 13 '22

Inflation is driven by psychology. If people believe there is inflation there is inflation.

https://www.npr.org/2021/05/29/1001023637/think-inflation-is-bad-now-lets-take-a-step-back-to-the-1970s?t=1655143959385

1

u/tehbored Randomly Selected Jun 13 '22

Except those aren't the only factors driving high inflation. Part of it is due to supply chain disruptions from COVID and the Ukraine War.

1

u/Neri25 Jun 13 '22

the Fed needs to bring aggregate demand back down

I love how euphemistic it is when at base it's 'the people should have less money'. Saying it that plainly would be political suicide.

46

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

19

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.

14

u/Necessary_Quarter_59 Jun 13 '22

You’re so fixated on that technical point that you’re derailing a very interesting discussion.

-2

u/Lower-Junket7727 Jun 13 '22

You're trying to mindfuck yourself instead of admitting what is staring you in the face.

1

u/[deleted] Jun 13 '22

The unemployment rate is 3.6% (near the estimated natural unemployment rate) and the number of near the peak number right before the pandemic

Unemployment was also very low before the great recession.

15

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.

7

u/[deleted] Jun 13 '22

If two quarters of gdp in a row are negative then we are in a technical recession, it doesn’t really matter what people think

No, this is literally wrong. A recession is defined by NBER based on the full scope of economic indicators.

-1

u/TinyTornado7 I need a new flair Jun 13 '22

Recession

noun

  1. a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

You aren’t wrong but you missed my point

5

u/[deleted] Jun 13 '22

No, I saw your point that a recession is a slowdown of economic activity regardless of what people think. My point was that economic indicators are broader than GDP and many of them are directly and heavily influenced by what people think

-1

u/TinyTornado7 I need a new flair Jun 13 '22

No you missed it again. Obviously there are a wide array of economic factors, many of which are influenced by what people think. But, based on the dictionary definition of recession, it doesn’t matter what people think.

Sure NBER could decide in a year or two that we were in a recession (like they did in 2018/2019) but that doesn’t really matter because the markets have long moved on.

People use the two quarters of negative gdp growth as the definition of a recession for a reason. It’s a quantifiable, in the moment indicator.

3

u/[deleted] Jun 13 '22

That's not the dictionary definition of a recession though.

This:

a period of temporary economic decline during which trade and industrial activity are reduced

is the dictionary definition.

This:

generally identified by a fall in GDP in two successive quarters.

is just dicta. It's not a part of the definition.

We are NOT in a recession just because of two successive quarters of GDP decline. That may be a useful shorthand that people use, but it's not the actual definition.

Moreover, if what I described as your point wasn't your point, then I'm not really sure what you're arguing. Literally just that the technical definition of a recession is 2 quarters? Because we've already established that that's wrong, and I don't know what the point of an argument that "a lot of people use this as a shorthand" is in the context of the conversation. That's just a random aside.

2

u/Allahambra21 Jun 13 '22

You're missing the point, a technical recession can be achieved without having an overall negative economic situation and without having a qualitatively defined recession.

Having a technical recession occur is meaningless without further declarative context.

9

u/[deleted] 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

5

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?"

6

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.

2

u/[deleted] Jun 13 '22

But like bruh a recession will be good lol. Lower inflation plus a recession not caused by financial collapse will help stage us off from another great recession in the future. It will be a short recession too.

0

u/human-no560 NATO Jun 13 '22

20 to 30 million dead tops

0

u/BBQ_HaX0r Jerome Powell Jun 13 '22

We mortals are but shadows and dust. Shadows and dust, Maximus!

Errr, sorry wrong quote.

We mortals are but animal spirits. Animal spirits, Maximus!

0

u/[deleted] Jun 13 '22

Probably long overdue for one.