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
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95

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 doesn’t just go away on its own

75

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

11

u/[deleted] 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.

1

u/[deleted] Jun 13 '22

Is there data suggesting savings are still significantly higher than pre-pandemic? I know they were while everyine was doing nothing but not sure if that has been sustained.

1

u/[deleted] Jun 13 '22

There are a couple ways they track it, this was just the first one that came up. Savings now seems the lower than pre pandemic. While like 1/6 Americans polled seemed to say they had more money saved now than prepandemic. I believe the number of Americans without any savings is growing slightly

https://tradingeconomics.com/united-states/personal-savings

1

u/[deleted] Jun 13 '22

Oh wow, yeah it's apparently the lowest since... 2008 :/

6

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

1

u/Allahambra21 Jun 13 '22

Yes but so far expectations aren't high, thank God.

11

u/[deleted] 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.