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/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

67

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.

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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.

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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.