Inflation lasts a long time here


Bidenflation will increase

Inflation is disappointing US households.

Share of US adults tell Gallup researchers they are struggling financially due to inflation. increased to 61% in the latest survey, compared to 56% in the August and November surveys. The proportion of people reporting serious difficulties remained at around 15%; thus, growth is associated with those experiencing moderate difficulties.

It’s amazing the challenges of inflation jumped even as inflation fell. Annual growth in the consumer price index reached 9.1% in June, about 11 months ago. However, a mid-April Gallup poll showed an increase in reported difficulties. The simplest explanation for this is not just the rate of inflation, but its duration.

A temporary episode of high inflation may be a one-time price adjustment. It may sound harsh, but soon the salary will adjust to the higher regime. However, inflation often continues reduces real income. It also gets worse as monthly price increases are added to the previous month’s increases. Meanwhile, the annual growth is in addition to last year’s growth.

There may also be a psychological toll of prolonged periods of inflation. people are getting tired to see the price of household bills rise. The credibility of the Biden administration and the Federal Reserve has been undermined by numerous claims that inflation is transitory, based on or has ended temporary disruptions in the supply chain.

Long-term inflation

Unfortunately, we are likely to face a prolonged period in which inflation will be much higher than the economy experienced before the pandemic. The process of manufacturing recovery and decoupling from China will increase inflationary pressure. Increase the threat of war and direct international conflict is inflationary. Likewise a trend away from growth policies in favor of policies that support diversity, inclusion and equality. The government-mandated transition to clean energy will also raise prices.

It probably doesn’t mean we have 9% inflation. But it shows that inflationary pressures are pushing us forward three to four percent inflation. The fact that the Fed wants to return us to 2% inflation means that policy rates are likely to remain restrictive for a long time, even in an economic downturn. Easing the economic recovery will also increase inflation – and we can high inflation or high interest rates for a long time.

This is not what the financial markets expected. Bonds and stocks are only marginally predictable business benefits it will not lead to a wave of defaults or a significant drop in corporate profits. Bond and derivatives markets seem to expect the Fed to cut rates even in a mild recession or to conclude that inflation will safely return to 2% within months. Neither outcome seems likely, given trends favoring high inflation.

US households may understand this better than Wall Street. As we reported last week, consumers’ long-term inflation expectations are rising. Consumers’ expectations for inflation over the next five to 10 years rose to 3.2% in May, ahead of a range of 2.9% to 3.1% over the past two years, according to a preliminary reading of the University of Michigan’s survey of consumer sentiment.

Biden is pushing the Fed in the wrong direction

Unfortunately, President Biden’s Federal Reserve Nominees may not be very helpful in relation to inflation. They seem more interested in issues like climate change and racial equity in the labor market than in growth and price stability.

Allison Schrager, A Bloomberg opinion columnist explains the problem:

Monetary policy is in a difficult period. The Federal Open Market Committee’s choices over the next few years will determine whether we can control inflation, how fast our economy grows, and what happens in the financial markets. We need the best economists and experts with deep knowledge of these issues and the negotiators involved in balancing all these challenges. This should include at least one person on the team who has a deep understanding of macroeconomics and its interaction with financial markets.

But that’s not what we get. Chairman Joe Biden’s latest pick for the Fed’s Board of Governors, Adriana Kugler, is an excellent labor economist, but there’s no one on the board with experience in macroeconomics, so we have to do it. getting the economy through this tough time…

Some might speculate that the choice of Coogler, a Latina, was due to diversity pressure. But there were other excellent economists from different backgrounds who had the requisite experience in the job and could have done the job better, as well as made historical contributions. Janice Eberly or Ricardo Caballero would be good choices.

Any observant person will have to wait more inflation, not less Biden’s number of Fed appointments will increase.

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