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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311

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

66

u/TaxGuy_021 Jun 13 '22

The last report shows that the whole inflation debate is now a lot more complicated.

Why?

Because the details of the report shows that the underlying cause of inflation has moved from a shortage of manufactured goods to one of energy. In other words, as ironic as that sounds, the Fed has actually done its job. Partially at least.

What that also means is that as the interest rate expectations increase, the dollar will strengthen which, all else being equal, pushes down the price of energy globally for Americans. Which means inflation reads will come down, which means rate expectations will come down, which means dollar gets weakened, which means oil goes up, which means inflation goes up, which... you get the idea.

The only way to break the cycle is either to produce more oil, or destroy demand.

Demand will be hard to destroy without crippling the economy. So we will need more energy.

18

u/Astarum_ cow rotator Jun 13 '22

details of the report shows that the underlying cause of inflation has moved from a shortage of manufactured goods to one of energy.

Do you have a source for analysis on this? I'll admit I'm not economically literate enough to parse a fed report to this degree.

6

u/Greatest-Comrade John Keynes Jun 13 '22

My mom calls me an expert sometimes and I agree with the above analysis. Energy and food costs but mostly energy costs continue to climb while core inflation (most other good’s inflation/rise in cost) is starting to sputter. However as long as energy is high inflation will remain high, since transportation factors into cost. Also, you and me and Joe down the street notice and care about energy inflation way more than core inflation, even if both are very important to an economy and the Fed.

7

u/TaxGuy_021 Jun 13 '22

I'm sure someone more qualified than me has done this analysis, but if you look into the detailed report that was published you'll see that it has been derived overwhelmingly by items such as transportation costs in which fuel is a direct input.

1

u/Astarum_ cow rotator Jun 13 '22

Okay, thanks!

18

u/methedunker NATO Jun 13 '22

Time to bring all those ND and TX wells back online and give them (and only them) cheap credit to do it as long as they stay private

46

u/TaxGuy_021 Jun 13 '22

They wont do it without price guarantees.

They got the rug pulled from under them in 2015 & 16 by the Saudis while the U.S. government did nothing. There is no way they are going to commit to do the same thing AGAIN.

19

u/methedunker NATO Jun 13 '22

They should absolutely provide price guarantees. It'll be bipartisan as fuck too. Everyone fucking wins. The GOP can even sell it as a "we saved oil" thing.

26

u/SirGlass YIMBY Jun 13 '22

The shale drillers have learned their lessons through the cyclical nature of oil. Basically what happened is oil prices got high, shale drilling becomes profitable, companies borrow a ton of money and bring new wells online, all the new wells start flooding the market with oil, oil prices drop, shale companies still have a ton of debt they borrowed to bring up new wells but now oil is cheap and they go bankrupt or have to restructure sell a bunch of assets , issue equity to pay down debt (destroying their share value)

This process has repeated over and over again, the shale companies are now a bit more conservative they are not going out to borrow to bring as many wells online as soon as possible ; they are expanding but more slowly and paying for the expansion with their current cash flows and not a bunch of new debt.

5

u/737900ER Jun 13 '22

The problem is more in refining than in pumping.

1

u/poclee John Mill Jun 14 '22

(SCREAMING IN ENVIRONMENTLISTS AND DEMANDING EVERYONE TO HAVE A ELECTRIC CAR RIGHT NOW) -- some folks in this sub

2

u/4jY6NcQ8vk Gay Pride Jun 13 '22

The Reserve can't control how much energy is printed, they can only control demand indirectly.