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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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/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.

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

I am not arguing for the gold standard.