6 ms·

All bets are off if the Fed and White House are wrong about inflation

27 points by throwkeep 5y ago

talentedcoin 5y ago
They’re not. Most of these price increases (e.g. semiconductors, lumber, consumer perishables) are supply-chain related. It’s reasonable to expect them to subside as the most acute phase of the pandemic recedes. Only one I’m not sure about is the price of a meal at a restaurant …
- whb07 5y ago
  They are… you cannot roll back wage inflation. “Oh hey Jim, I know we hired you at $25/hr.. well now that things are normalizing, well have to pay you the real rate of $12/hr” Even the PepsiCo CEO was commenting on passing higher prices and the consumer accepting them just fine.
  - talentedcoin 5y ago
    Idk. I somewhat agree; but I’m not sure what to think of that because it’s a fiscal and not a monetary intervention. Minimum wages going up (whether explicitly or because unemployment benefits are competing with them) will definitely bump up demand and will also bump up costs for some industries, particularly restaurants and hospitality. Insofar as demand responds positively a little inflation is imo not a terrible price to pay. This article, however, is bringing up a boogeyman that inflation will somehow slip from the Fed’s grasp, which I very much doubt.
    - whb07 5y ago
      So idk how deep you want to go into “basic” common sense economics and not this trashy thing they call it now, but the divide between fiscal/monetary is by name only. Let me explain: There used to be the real divide between both, but now every action by the fiscal side is effectively done by the monetary side. Congress writes some laws, the treasury calls up the FED the night before the day of selling new bonds and just like magic, the bonds get sold at a superb price. The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates, would lead to default as just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost… So what’s the FED to do? Why are living expenses going up faster than real wages? Why do you think theres a godly group of supremely moral and righteous humans sitting at the FED?
      - dragonwriter 5y ago
        > The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates 400 basis basis points, back to the level of late 2005-early 2007, is a “tiny” increase in rates? That's an enormous increase... > just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost… If you look at history of Treasury interest rates and Fed Funds rates, the relationship you imply where even that giant increase to the Fed Funds target would do that... doesn't exist.
        whb07 5y ago
        Going from 0-1% to 4-5% is massive I agree on that. But in the absolute, it’s still tiny and even a negative real interest rate. The other stuff about the fed activities not influencing treasury rates is about as true as inflation being 2% avg for the last couple years.
        dragonwriter 5y ago
        > But in the absolute, it’s still tiny No, it's not; its from the global minimum to, while not the historic global maximum, a level clear on the other side of average. > The other stuff about the fed activities not influencing treasury rates No one said that. The relation historically is not such that going to a 4-5% fed funds target would double or triple debt service costs.
        talentedcoin 5y ago
        For what it’s worth, the unusually large increase in inflation as measured by CPI seems to be at least partially due to base effects: https://www.dallasfed.org/research/economics/2021/0513 https://www.dallasfed.org/research/economics/2021/0513 Long story short, we are comparing year-on-year when last year was itself almost as unusual as can be.
        imtringued 5y ago
  - BizarroLand 5y ago
    I mean, they charge nearly $3 for a 20oz soda. I know some of that is convenience store surcharge but their prices have gone up at least 10% in the last year.
- ganeshkrishnan 5y ago
  Absolutely correct. Printing excess money does not cause inflation. Disrupting supply chain does. Especially with USD which has virtually unlimited appetite. If anything good comes out of this covid, it will be remote work and universal basic income (since we already tested that printing more money causes no major issues)
- bcrl 5y ago
  There's about to be a boom in overconstruction of semiconductor fabs with all the government incentives to build new fabs in the US and Europe. It will be a sad day if we go back to the days of tariffs raise on DRAM that were a regular part of the semiconductor industry 30 years ago.
ixacto 5y ago
My early 2000s car went up in value by 30% according to credit karma last year. This should not be happening. Something is Broken.
- sreekotay 5y ago
  This one (used cars) is interesting. Combination of supply limitation and a large number of start-ups/VC money in the sector. It really is true today that buying a trusted used car is WAY easier than buying a new car. This has squeezed a LOT of the previous depreciation math out of the market (read: there was a huge arbitration opportunity)
  - conro1108 5y ago
    > It really is true today that buying a trusted used car is WAY easier than buying a new car. Could you elaborate on this? Is this a recent development? I bought a new car in November 2020 and while I certainly don’t _love_ the dealership experience and I’m probably less uncomfortable with financial negations than your average person, it didn’t strike me as a particularly painful experience.
    - ixacto 5y ago
      The costco auto program makes buying a car pretty easy. Zero haggling at least.
- jude- 5y ago
  The microchip shortage has impeded new car manufacturing, and car fleet operators are buying back fleets they sold during the pandemic to stay afloat. Give it a year.
  - whb07 5y ago
    Lol. Don’t you think it’s very linear and simple variable thinking with that comment? The car salesman won’t see the higher prices? The guy down the street won’t see the higher prices and ask for higher wages to afford the price increases?
ideamotor 5y ago
The biggest cause of inflation is talking about inflation. If people believe it will happen, it will. Otherwise, it won’t. So, uh, let’s not about it, OK? ;) Also we all experience inflation differently and our past experiences influence our expectations. The things I look at are already highly inflated (electronics, cars, housing, restaurants). Those are not everything. But I bet readers of this Website most often look at those same things …
imtringued 5y ago
I think there is a lot of confusion based on terminology. Even though the US failed to hit the 2% inflation goal for years that doesn't change that the Fed considers 2% inflation to be price stability i.e. the same thing as no inflation. When they say transitory inflation they obviously mean transitory inflation above 2%. One problem with transitory is that a lot of people think the timescale is very short, maybe it will be over by the end of 2021 but nobody really knows because it all depends on how quickly the supply chains catch up.

27 points by throwkeep 5y ago

They’re not. Most of these price increases (e.g. semiconductors, lumber, consumer perishables) are supply-chain related. It’s reasonable to expect them to subside as the most acute phase of the pandemic recedes. Only one I’m not sure about is the price of a meal at a restaurant …

whb07 5y ago
They are… you cannot roll back wage inflation. “Oh hey Jim, I know we hired you at $25/hr.. well now that things are normalizing, well have to pay you the real rate of $12/hr” Even the PepsiCo CEO was commenting on passing higher prices and the consumer accepting them just fine.
- talentedcoin 5y ago
  Idk. I somewhat agree; but I’m not sure what to think of that because it’s a fiscal and not a monetary intervention. Minimum wages going up (whether explicitly or because unemployment benefits are competing with them) will definitely bump up demand and will also bump up costs for some industries, particularly restaurants and hospitality. Insofar as demand responds positively a little inflation is imo not a terrible price to pay. This article, however, is bringing up a boogeyman that inflation will somehow slip from the Fed’s grasp, which I very much doubt.
  - whb07 5y ago
    So idk how deep you want to go into “basic” common sense economics and not this trashy thing they call it now, but the divide between fiscal/monetary is by name only. Let me explain: There used to be the real divide between both, but now every action by the fiscal side is effectively done by the monetary side. Congress writes some laws, the treasury calls up the FED the night before the day of selling new bonds and just like magic, the bonds get sold at a superb price. The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates, would lead to default as just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost… So what’s the FED to do? Why are living expenses going up faster than real wages? Why do you think theres a godly group of supremely moral and righteous humans sitting at the FED?
    - dragonwriter 5y ago
      > The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates 400 basis basis points, back to the level of late 2005-early 2007, is a “tiny” increase in rates? That's an enormous increase... > just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost… If you look at history of Treasury interest rates and Fed Funds rates, the relationship you imply where even that giant increase to the Fed Funds target would do that... doesn't exist.
      - whb07 5y ago
        Going from 0-1% to 4-5% is massive I agree on that. But in the absolute, it’s still tiny and even a negative real interest rate. The other stuff about the fed activities not influencing treasury rates is about as true as inflation being 2% avg for the last couple years.
        dragonwriter 5y ago
        > But in the absolute, it’s still tiny No, it's not; its from the global minimum to, while not the historic global maximum, a level clear on the other side of average. > The other stuff about the fed activities not influencing treasury rates No one said that. The relation historically is not such that going to a 4-5% fed funds target would double or triple debt service costs.
      - talentedcoin 5y ago
        For what it’s worth, the unusually large increase in inflation as measured by CPI seems to be at least partially due to base effects: https://www.dallasfed.org/research/economics/2021/0513 https://www.dallasfed.org/research/economics/2021/0513 Long story short, we are comparing year-on-year when last year was itself almost as unusual as can be.
        imtringued 5y ago
- BizarroLand 5y ago
  I mean, they charge nearly $3 for a 20oz soda. I know some of that is convenience store surcharge but their prices have gone up at least 10% in the last year.
ganeshkrishnan 5y ago
Absolutely correct. Printing excess money does not cause inflation. Disrupting supply chain does. Especially with USD which has virtually unlimited appetite. If anything good comes out of this covid, it will be remote work and universal basic income (since we already tested that printing more money causes no major issues)
bcrl 5y ago
There's about to be a boom in overconstruction of semiconductor fabs with all the government incentives to build new fabs in the US and Europe. It will be a sad day if we go back to the days of tariffs raise on DRAM that were a regular part of the semiconductor industry 30 years ago.

ixacto 5y ago

My early 2000s car went up in value by 30% according to credit karma last year. This should not be happening. Something is Broken.

sreekotay 5y ago
This one (used cars) is interesting. Combination of supply limitation and a large number of start-ups/VC money in the sector. It really is true today that buying a trusted used car is WAY easier than buying a new car. This has squeezed a LOT of the previous depreciation math out of the market (read: there was a huge arbitration opportunity)
- conro1108 5y ago
  > It really is true today that buying a trusted used car is WAY easier than buying a new car. Could you elaborate on this? Is this a recent development? I bought a new car in November 2020 and while I certainly don’t _love_ the dealership experience and I’m probably less uncomfortable with financial negations than your average person, it didn’t strike me as a particularly painful experience.
  - ixacto 5y ago
    The costco auto program makes buying a car pretty easy. Zero haggling at least.
jude- 5y ago
The microchip shortage has impeded new car manufacturing, and car fleet operators are buying back fleets they sold during the pandemic to stay afloat. Give it a year.
- whb07 5y ago
  Lol. Don’t you think it’s very linear and simple variable thinking with that comment? The car salesman won’t see the higher prices? The guy down the street won’t see the higher prices and ask for higher wages to afford the price increases?

ideamotor 5y ago

The biggest cause of inflation is talking about inflation. If people believe it will happen, it will. Otherwise, it won’t. So, uh, let’s not about it, OK? ;) Also we all experience inflation differently and our past experiences influence our expectations. The things I look at are already highly inflated (electronics, cars, housing, restaurants). Those are not everything. But I bet readers of this Website most often look at those same things …

imtringued 5y ago

I think there is a lot of confusion based on terminology. Even though the US failed to hit the 2% inflation goal for years that doesn't change that the Fed considers 2% inflation to be price stability i.e. the same thing as no inflation. When they say transitory inflation they obviously mean transitory inflation above 2%. One problem with transitory is that a lot of people think the timescale is very short, maybe it will be over by the end of 2021 but nobody really knows because it all depends on how quickly the supply chains catch up.