Yahoo Finance-Fed's Williams: The Fed has its 'work cut out' bringing down inflation

[sprinkleeninow]

New York Fed President John Williams said Tuesday the Federal Reserve has work to do bringing down inflation given a labor market that remains "quite strong."

"Inflation is still very high," Williams told Yahoo Finance Live in an exclusive interview on Tuesday. "Some of this core services inflation excluding housing that hasn't budged yet, so still ... got our work cut out for us to get inflation back to 2%."

https://finance.yahoo.com/news/feds-williams-the-fed-has-its-work-cut-out-bringing-down-inflation-183334437.html

Most likely I don't know what I'm talking about but, I say "bull nuggets".

[bucolic_frolic]

1. If you remember the 70s and understand economics this is not a surprise

I've been saying for over a year to expect 10% interest rates IF they want to cure inflation. I doubt we're getting the volume of some products from China as we did pre-pandemic.

Stock market has ignored earnings as it powers higher. Not expecting positive returns to be a given.

[peppertree]

2. But then - they'd trigger a deep, Early '80s-style recession

Just the thing to go with the vinyl records that have come back in style in recent years.

But even better- if what they want, is to sabotage Biden's re-election chances.

[bucolic_frolic]

3. Biden's inherited timing on the economy will be as bad as Trump inheriting COVID

You can have a recession to cool inflation, or you can have hotter inflation. Running for re-election on either one is detrimental, but it's not your choice, you can only influence it with reduced budget deficits. Which path do you choose? Does the choice make a difference? The times is what they is. As long as there is gasoline, food, jobs, a little inflation won't matter too much with the Republicans in dissaray, dissolution, dissipation, or however you characterize it.

[peppertree]

4. I hear you

But if unemployment begins to escalate (say, to 2% or more above current levels), his goose is cooked.

And remember that it took 10%+ unemployment to bring down inflation after the 1979/80 and the (grossly underreported) 2005/08 price bubbles.

More, if you count the newly discouraged - who always add up to millions during severe recessions.

If, on the other hand, we manage to keep inflation hovering around 5/6% or so - but with full employment - Biden would still have a good chance.

Especially since, as you pointed out, he didn't exactly inherit a good economy from El Cheetolísimo.

[bucolic_frolic]

5. It may not be as bad as the 1970s, this is a gig economy

and many are happy with gig jobs, having strengthened their futures with modern skills and minimalism.

While I think gasoline supply is stable and supply chains are recovering, I can't guarantee the electric grid nor stockouts from Chinese manufacture. Those worry me politically. Anything that makes the public mad. Recall the early 2021 gasoline pump stickers, "I did that!". Republicans thought they had a good one. But it was a 'meh'.

[peppertree]

6. In any case, it's all up to the Fed - and I fear they'll try to 'Carter' Biden

Just like Greenspin did to Gore in 2000 - raising rates like all get-out, with almost no inflation.

Now, to your point about those stupid gas pump stickers - it goes to one of Biden's biggest strengths: that he's fundamentally likable.

Repugs may disapprove of him, and make fun of his age (baby boomers, are you listening?) - but they don't hate him, like they did Obama or Hillary (and to some extent, Kamala Harris).

And you can't put a political price tag on that: good ol' fashioned likability.

It got Reagan and Bill Clinton through a lot, and - short of some deep recession - it might just get Biden through these problems too.

When Irish eyes are smiling...

[progree]

7. There was 3.5% inflation for several months. The Fed target is 2%

It looks to me like they were serious about the 2% inflation target that they have long espoused.

Below is a graph of the Federal Reserve's target interest rate and the CPI from 4/1998 to 12/2001


# CPI: https://data.bls.gov/timeseries/CUSR0000SA0
(In "More Formatting Options" at the upper right one can change/add 2 month, 3 month, 6 month, and 12 month rolling averages, as well as show the 1 month changes. All with graphs.

# Fed Funds Target Rate (until 2008) -- https://fred.stlouisfed.org/series/DFEDTAR
  (Context: it spent most of late 94 to late fall 98 at above 5%),

Per the NBER, the recession began March 2001.

I suspect likewise that nowadays the Fed is serious about the 2% target, but mindful of not crashing the banks. Core PCE is well over 4% on a rolling averages basis. https://www.democraticunderground.com/10143053501#post5

I'm frankly surprised that so many think the Fed is going to let inflation sit at more than twice their target rate, and that the 2% target is just for shits and giggles.

A 3.5% inflation rate (the peak plateau level shown in the above graph) may not be red-hot, but it's enough to cut the purchasing power of the dollar in half in about 20 years, and down to a quarter in 40 years.

On "Cartering" Biden -- Carter nominated Paul Volcker to be Fed Chair in July 1979, knowing full well what Volcker was going to do.

[bucolic_frolic]

8. Biden and Powell met about 18 months ago, I think

It was publicly announced, and about a month later the Fed began raising interest rates. I think Biden and Powell get along. The Fed and Biden White House have not blamed each other publicly. I take that to mean Biden told Powell to fight inflation no matter what. Republicans are gaining little traction blaming Biden for anything, for some reason. Climate change, green energy, economy ... all Republicans worry about is more guns, abortion, and trans social issues. And GOP is in the minority on the first two. With young progressives they're underwater on everything. You can't worry about this. Biden is among the smartest and most experienced president ever, has the best minds in the world around him. They just don't seem to make self-induced errors. Everything is gamed out beforehand.

[peppertree]

9. Well said.

I'm just very given to worrying, to tell you the truth.

That said - I don't entirely trust Chairman Powell.

I will concede that he was probably the only - or one of a handful - of top-level Trump appointees, who was actually qualified and sane.