Tag: inflation expectations

Interest Rates Are Too High. The Fed Should Cut by a Half Point.

Mary Pat Campbell

Link: https://www.wsj.com/economy/central-banking/interest-rates-are-too-high-the-fed-should-cut-by-a-half-point-e7855ea8

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Excerpt:

A year ago inflation as measured by the consumer-price index was 3.2%. In August, it was 2.5%. In that time, core inflation, which excludes food and energy, has fallen from 4.2% to an estimated 2.7%, using the Fed’s preferred gauge, the price index of personal-consumption expenditures, or PCE.

The gap between 2.7% and the Fed’s 2% target largely reflects the lagged effects of higher housing, auto and other prices from a few years ago. Some alternative indexes attempt to exclude such idiosyncratic factors. Harvard University economist Jason Furman averages several over different time horizons to yield a single, PCE-equivalent underlying inflation rate. It was 2.2% in August, the lowest since early 2021.

Inflation is likely to keep falling. Oil has plunged from $83 a barrel in early July to below $70 on Friday. This will directly lower headline inflation and, indirectly, core inflation because oil is an input into almost every business. A study by Robert Minton, now at the Fed, and Brian Wheaton at the University of California, Los Angeles, found oil can explain 16% of fluctuations in core inflation, and it takes two years for 80% of the effect to show up.

Author(s): Greg Ip

Publication Date: 15 Sept 2024

Publication Site: WSJ

Quotes of the Day on Rent Inflation By the Fed and Property Managers

Mary Pat Campbell

Link: https://mishtalk.com/economics/quotes-of-the-day-on-rent-inflation-by-the-fed-and-property-managers/

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According to data from the U.S. Census Bureau, moving rates for Americans declined from 12.8% in 2021 to 12.6% in 2022.

But what is it for 2024?

My guess has been 9 percent in a range of 8 to 11 percent or so. But we will not know that for two more years.

Author(s): Mike Shedlock

Publication Date: 13 May 2024

Publication Site: Mish Talk

Wharton professor Jeremy Siegel says Jerome Powell is making one of the biggest policy mistakes in the Fed’s 110-year history, and it could lead to a major recession

Mary Pat Campbell

Link: https://finance.yahoo.com/news/wharton-professor-jeremy-siegel-says-191800487.html

Excerpt:

The Wharton professor Jeremy Siegel has a big issue with the Federal Reserve’s aggressive interest-rate hikes in its bid to tame inflation, and he’s worried that the central bank is making the biggest mistake in its history and may provoke a steep recession.

Siegel said inflation is starting to come down significantly, but the Fed is still moving forward with its rate hikes.

He said it could be “one of the biggest policy mistakes in the 110-year history of the Fed, by staying so easy when everything was booming.”

…..

“I think the Fed is just way too tight. They’re making exactly the same mistake on the other side that they made a year ago,” Siegel added.

To Siegel’s point, the Fed has had a lousy record of accurately forecasting where it expects interest rates to be just a few months into the future.

….

“I am very upset. It’s like a pendulum. They were way too easy through 2020 and 2021, and now ‘we’re going to be real tough guys until we crush the economy,'” Siegel said of the Fed.

Siegel expects the Fed to “eventually see the light” as none of their recent predictions are likely to come true.

“I think they’re going to be forced to lower the rates much more rapidly than they think,” Siegel said, a move that could set up stocks for a potential recovery from their ongoing decline.

Author(s): Matthew Fox

Publication Date: 25 Sept 2022

Publication Site: Yahoo Finance

The Asininity of Inflation Expectations, Once Again By Powell and the Fed

Mary Pat Campbell

Link: https://mishtalk.com/economics/the-asininity-of-inflation-expectations-once-again-by-powell-and-the-fed

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Common sense and practical examples suggest that inflation expectations theory is ass backward.

So much of the CPI is nondiscretionary that it’s difficult to impossible for CPI expectations to matter. 

Yet, economists focus on expectations that don’t matter and ignore the expectations that do matter, namely asset prices!

I have written about this several times previously, two of them before I even found the Fed study supporting my view. 

…..

A BIS study concluded “Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive.“

Indeed, that must be the case as more goods for less money by default improves standards of living.

The Fed was hell bent on reducing standards of living via inflation. Now they struggle to undo the inflation and asset bubble consequences they created. 

The Fed is the problem, not the solution.

Author(s): Mike Shedlock

Publication Date: 25 Jun 2022

Publication Site: Mish Talk