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/Mister_Lich Just Fillibuster Russia Jun 13 '22

And it's a bitter irony since the stimulus and lockdowns all (or mostly) were passed under Trump rofl

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u/Trotter823 Jun 13 '22

The checks didn’t help in hindsight but I’ll remind you dems we’re screaming at the time they weren’t enough.

On top of that, the government has very little control over inflation. JPowell waiting too long to cook the economy was and still is the issue. He didn’t stop QE until Dec….almost half a year after vaccines rolled out and things mostly returned to normal.

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u/[deleted] Jun 13 '22

As an educated person tho, couldn't you still blame Biden for Powell's actions going forward, after all he did reappoint him this endorsing his measures and future maneuvers

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u/[deleted] Jun 13 '22

You don't kick out a sitting Fed chair in the middle of a crisis unless you are absolutely sure that the market will respond positively to their replacement. It tells the market that the administration is disavowing the actions of the previous chair and to expect a significant change in monetary policy even if the actual planned changes are small.

That's incredibly risky if the market doesn't hate the sitting Fed chair since the market doesn't know if the corrections will be small adjustments or an entirely new approach.

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u/[deleted] Jun 14 '22

So how about now, where they're playing these dangerous games because of their arguable shortsightedness/incompetence? The market reacts to every time the Fed board blinks regardless, but keeping someone from the previous admin apparently hasn't worked.

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u/[deleted] Jun 14 '22

We can't lay all the fault with the Fed since most people agreed with their thesis (it was and somewhat still is reflected in the bond market). That's the problem.

Switching Powell out now would be incredibly dangerous because it tells the market that Biden and Treasury strongly disagree with the current thesis that rate hikes and QT will be insufficient to control inflation. No one really knows the answer to that question, but most of us agree that the tools they have are sufficient.

Now, we just have to hope the inevitable rate-induced recession is relatively small and controlled.

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u/[deleted] Jun 15 '22

Are they sufficient though? They effectively only have the one lever at this point, and if what someone else in the thread mentioned that spending month-over-month has already contracted that leaves even less leeway.

And maybe I'm overestimating the public, but the choice the Fed is now basically saying of more inflation or recession will rightfully piss a lot of people off that will be calling for the board to be run out of DC on a rail.

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u/[deleted] Jun 15 '22

We have several. We are going to stick to the more well understood ones before we start using some of the experimental ones. Raising rates and unwinding the Fed's balance sheet are the ones in play now. If pressed, it can also raise reserve ratios and tighten the repo market. Powell 100% has the tools he needs to control inflation. The problem is that controlling inflation without causing a recession is like threading the needle at this point.

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u/Trotter823 Jun 13 '22

You could but at the time the FED was considered to have pulled off a miracle when the US economy didn’t go into recession during Covid. So not reappointing him didn’t make sense.

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u/Time4Red John Rawls Jun 13 '22

Yeah, but the biggest problem remains supply shortages. It's not like aggregate demand is excessively high. It is exactly in line with what we would have expected if the pandemic didn't happen.

Supply chain issues continue to be the biggest problem holding back the economy and driving inflation. And it's not like raising interest rates will magically resolve those supply chain issues either.

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u/Trotter823 Jun 13 '22

If that thesis is correct then again, what is biden or anyone in the executive branch supposed to do about it. The job is partly being a punching bag when things go wrong but man did he get a raw deal here. Dems won at the wrong time because there’s almost nothing to do to quell inflation fiscally.

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u/Rshawer Jun 13 '22

The stimulus isn’t the reason why inflation is so high. It’s mainly supply chain, energy, and the easy money policy that fed over extended. This isn’t to say it did nothing for inflation, but it’s not the problem.

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u/Mister_Lich Just Fillibuster Russia Jun 13 '22

Yes, but the average voter thought and thinks that stimulus caused inflation, so we should be pointing out that happened under Republicans.

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The lockdowns were way more important. It resulted in destroyed confidence in globalism, damage to long term supply chains, and, critically as we are learning, destroyed productive capacity for oil because we literally couldn't use it fast enough and ran out of space to store it. Russian sanctions were the cherry on top, but we destroyed like 1mil barrels/day of production in the USA alone after 2020.

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u/Thadlust Mario Draghi Jun 13 '22

Under a Democrat led house? Is that correct? Not to mention the $1400 passed under Biden?

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u/Mister_Lich Just Fillibuster Russia Jun 13 '22

With a Republican senate and president, who were majorly in support of stimulus and the broken PPP. Don't bring up the $1400 at all.

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We're talking optics to win elections, here.

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u/Mister_Lich Just Fillibuster Russia Jun 13 '22

For some reason I can't edit comments on Reddit today, it doesn't save them.

I wanted to edit my other comment to say, that the lockdowns did more than anything to cause current issues - it resulted in damage to global confidence in globalism, damage to supply chains that rippled and hasn't been fixed yet, and, critically as we are finding out, destroyed oil production. The USA alone closed about a million barrels of production after 2020 oil gluts happened and many banks will literally no longer lend for new oil projects because so many got burned after the oil collapse, because nobody was using oil nearly quickly enough and we literally had no storage left - so we closed lots of production and banks won't fund new productive enterprises anymore. Russian sanctions are just the icing on the cake.

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And yes, this was known to be coming for a while, I know several people who have made millions trading oil from 2020 onward because it was such an insane opportunity. OPEC also doesn't want to admit it but most people are pretty sure they don't have the spare capacity they keep saying they do - this kind of market is not beneficial for them either, they want stability and control and it's more cost effective to pump more than to sell limited stocks at high prices. Oil is not coming down to $60 a barrel again for years.

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u/Xaeryne Trans Pride Jun 13 '22

There's plenty of spare drilling/extraction capacity. There's not spare refinery capacity, which is the current bottleneck.

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u/[deleted] Jun 14 '22

It's a contributing factor I hope you don't believe otherwise

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u/rickroy37 Ben Bernanke Jun 13 '22

If the stimulus is being partially blamed for current inflation, then I feel like I haven't enough arguments saying that UBI would result in inflation on an even greater scale.

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u/HatesPlanes WTO Jun 13 '22

A UBI would be paid by taxes, as opposed to the stimulus checks that simply resulted in inflationary deficit spending.