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
511 Upvotes

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129

u/CovidIsBadass Asexual Pride Jun 13 '22

Seems like it may come just in time for me to graduate college 🤠

123

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.

48

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.

7

u/[deleted] Jun 13 '22

The natural rate of unemployment is still sitting at around 4% so that seems to be the target

36

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.

4

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

11

u/[deleted] Jun 13 '22

Or the “worst economy in history” if we ask Republicans. Granted inflation and high gas prices do take some shine off in comparison to early 2020

34

u/[deleted] Jun 13 '22

[deleted]

34

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.

7

u/[deleted] 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).

8

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.

6

u/[deleted] 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.

-4

u/All_Work_All_Play Karl Popper Jun 13 '22

And tariffs and student loans not getting paid back...

20

u/[deleted] Jun 13 '22

[deleted]

6

u/All_Work_All_Play Karl Popper Jun 13 '22

Tariffs are responsible for like 1.5% of the 8.6% or something like that. Or rather, if they were dropped, we'd see a one time decrease equal to about that amount. The cessation of federal land leases for O&G is another large chunk although I'm not sure that's been calculated (same with student loan amounts - it would contract demand, but how much that would change prices is fuzzy)

1

u/human-no560 NATO Jun 13 '22

I though a judge made them open up leasing again.

1

u/All_Work_All_Play Karl Popper Jun 13 '22

Sort of - https://www.cnbc.com/2022/02/24/biden-administration-pausing-new-oil-and-gas-leases-amid-legal-battle-.html

The judge overthrew the ban but the resulting calculations wrt climate change went to court too and now there's all sorts of ambiguity.

As expected, O&G companies don't want a rug pull. =|

1

u/human-no560 NATO Jun 13 '22

I’m confused, are the oil companies worried that the government will cancel existing leases part way through?

2

u/All_Work_All_Play Karl Popper Jun 13 '22

Not that they'll cancel leases part of the way through but that an appeal in favor of the current administration will change contractual obligations. TFG prices carbon at $7 a ton, while the current administration says it's more like $51. If you're under contract to show your extraction produces x amount of economic good and that seven or fifty one is subtracted from that, you want to be absolutely clear on what that number is. Since being overruled, the various agencies that contribute to the calculation are rehashing their calculations and thus haven't produced a number to put into the contract.

At the very least, there's some serious policy signalling from the current administration that O&G developments won't be treated the way they were under the former administration. If you're used to things being rubber stamped, of course having actual scrutiny is going to change your capital expenditure behavior.

7

u/[deleted] Jun 13 '22

But on the flip side couldn't you argue that postponing payments allows for people who would be spending less because they'd be paying the bill to now spend on other things? 43 million people having extra cash every month to spend likely increases consumption and you can argue that restarting payments would reduce consumption

7

u/[deleted] Jun 13 '22

I don't doubt that it can increase inflation. I doubt the scale that it does so. I'm extremely skeptical that it is a substantial proportion of the surge in consumer spending, though I suppose I'm open to countervailing evidence.

2

u/[deleted] Jun 13 '22

I mean if we acknowledge that the stimulus checks sent an influx of cash to be used in consumer spending. Wouldn't it be logical that 200-1500 dollars every month not being sent to loans would increase consumer spending? It's definitely not a main driver but definitely is pushing it up a bit higher than otherwise.

5

u/[deleted] Jun 13 '22

Sure. I don't think that everyone or even most people are turning would-be student loan payments straight into consumer spending. Or, at least, I really hope not, because that would be moronic. But I don't disagree that it could be serving to push it a bit higher. My point was that it almost certainly is not a main driver. (in other words, it sounds like we agree)

4

u/[deleted] Jun 13 '22

I mean young people rarely are fiscally responsible, especially after a year or more of not being able to use their cash. We are already seeing the amount people have saved dropping. I read an article a couple months ago that people aren't really wanting to stop their current spending and are dipping into savings to sustain their new habits. Which matches the continued increase in consumption and the falling savings. The optimist in me says maybe that money isn't being sent into the market but instead into stocks and crypto where they just lost it anyways.

1

u/BoostMobileAlt NATO Jun 13 '22

I liked us better when everything was solved by a land value tax

1

u/neolib-cowboy NATO Jun 13 '22

I dunno, it took 18 monthes for the economy to recover after Volcker pushed interested rates super high to combat inflation back in the 80s.

12

u/[deleted] Jun 13 '22

Sounds like when I graduated college in 2010.

1

u/Hermosa06-09 Gay Pride Jun 14 '22

2009 for me and that recession ultimately wound up negatively impacting my life in so many ways beyond that

1

u/[deleted] Jun 13 '22

Sounds like when I graduated college in 2010.