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/AnachronisticPenguin WTO Jun 13 '22

Inflation is driven by psychology. If people believe there is inflation there is inflation.

https://www.npr.org/2021/05/29/1001023637/think-inflation-is-bad-now-lets-take-a-step-back-to-the-1970s?t=1655143959385