馃攳
Can The Inflation Crisis In The U.S. Be Stopped? - YouTube
Channel: CNBC
[0]
prices for just about everything
are rising fast. And October
[3]
2021. Inflation took its biggest
jump in more than 30 years. It's
[8]
hitting specific parts of the
economy hardest. drivers face a
[11]
59% increase in the pump
compared to one year ago. The
[14]
average US vehicle is selling
for 26% more than it was a year
[18]
ago. vacation homes are renting
out a premium to
[21]
nobody likes to play. Nobody
wants to pay higher prices for
[26]
anything really
[27]
maintaining stable prices is one
of the Federal Reserve's main
[30]
responsibilities. In recent
decades. The economy is home
[33]
below the central bank's target
rate.
[35]
Now post pandemic, the Fed they
want inflation at least for a
[39]
while to be above 2%. And
they'll get exactly what they
[43]
want simply because of the
acceleration rent growth.
[46]
Critics say there are signs of
turmoil in the economy that the
[48]
Fed isn't hearing.
[49]
I think it's pretty darn clear
that the Fed cannot control
[52]
inflation on the downside or the
upside. Given the current
[56]
experience
[57]
central bank has its defenders
to
[59]
the weight of the evidence is
finally going pals way teen
[62]
transitory is going to win.
There's a
[65]
lot of reasons to think that
inflation is transitory. It
[68]
doesn't mean it's going to be
two months it could be a year,
[71]
but it's not going to be four or
5% a year for the next five
[75]
years.
[76]
In the backdrop, governments are
spending big to keep society
[79]
afloat. The US Treasuries debt
is managed by the Fed, the
[82]
bank's assets swelled as it
printed trillions of dollars to
[85]
backstop the country. Which
leads to the question, can the
[88]
federal reserve control
inflation? And if so, what could
[91]
it do to rein in the cost of
living in the United States the
[99]
people who manage the US economy
prefer to keep inflation around
[102]
2%. That's because a low and
steady rate produces a healthy
[105]
business environment. These
rates are tracked in categories
[108]
like food, energy and housing.
These components are then
[111]
weighted against one another to
establish their importance. The
[115]
final scores that are produced
are then recorded over time. The
[119]
primary one you hear about on
the news is called the consumer
[122]
price index. It tracks all of
the spending from 93% of the US
[127]
population. Then there's the
trimmed mean inflation, which
[130]
throws out outlier data and
focuses on core prices.
[133]
movements in the trimmed mean
signal a more potent
[136]
inflationary trend, then there's
the PCE,
[139]
the Fed really prefers
[140]
to look at PCE that is personal
consumption expenditures Price
[145]
Index,
[146]
the Feds preferred measure of
inflation is broader than the
[149]
trimmed mean, but it throws out
some data from the energy and
[151]
food sectors. That's because
prices take bigger swings in
[155]
these industries more
frequently, what's included and
[157]
what's excluded from each
inflation index impacts its
[160]
reliability. Some like Danielle
DiMartino booth, a former Dallas
[164]
Fed employee believe that the
PCE is flawed. My biggest
[167]
issue with the PCE is that for
your average American household,
[171]
you spend between 40 and 50% of
your income on housing. If you
[176]
look at it through that simple
of a prison and understand that
[179]
the PCs input for housing is
only around 22% Then you see
[184]
that you're under accounting
households biggest expense by a
[188]
wide margin.
[189]
In the fall of 2021, the PCE
numbers spiked to generational
[193]
highs. When events like that
happen, public officials turn to
[196]
the Fed for answers. The Federal
Reserve was originally set up to
[200]
create a stable American banking
system. Its role has expanded
[204]
over its century long existence
in 1977. Congress gave it a dual
[209]
mandate.
[209]
Part of that mandate is to
maximize employment. The other
[215]
part of that mandate is to
stabilize prices or to basically
[218]
keep inflation in check.
[220]
Wilson says that the feds
ability to manage inflation
[223]
depends on the extent to which
inflation is driven by the labor
[226]
market. We're currently
[228]
seeing inflationary pressures,
largely because people have
[231]
shifted their consumption from
purchase of services the
[235]
purchase of goods that has
caused demand for goods that
[239]
outpaced the supply of goods,
you know, a period of time that
[242]
suppliers did not have adequate
time to really respond to that
[247]
increased demand.
[248]
In 2021, a sputtering global
supply chain and backed up ports
[252]
are causing delays. Many people,
including the leaders of the
[255]
Fed, don't believe the economy
has settled. Chair Powell
[259]
previously said this bout of
inflation is transitory. But now
[262]
he's walking back from using
that language, we
[265]
tend to use it to mean that it
won't leave a permanent mark in
[270]
the form of higher inflation. I
think it's it's probably a good
[273]
time to retire that that word
and try to explain more clearly
[277]
what we mean.
[278]
The central bank believes
current conditions don't change
[281]
the long term outlook. That's
because in recent years,
[283]
inflation has actually been
lower than what the Fed wanted
[286]
pre pandemic inflation was a
soft Fed Reserve at a 2%
[291]
inflation target. It was below
2%. Now post pandemic the Fed
[296]
has been saying they changed
their their thinking here they
[299]
want in At least for a while to
be above 2%. And they'll get
[304]
exactly what they want simply
because of the acceleration and
[307]
rent growth.
[308]
In 2019. Newly elected chair
Powell argued that long term
[311]
expectations of inflation were
low. Experts observing the labor
[315]
market reported that the
interest rate lift off that
[318]
began in 2019, cut the recovery
short, then an unexpected event,
[322]
the pandemic pushed the central
bank to create accommodative
[326]
financial conditions. That means
dropping interest rates, which
[329]
in theory will make prices rise
more quickly.
[331]
Nobody likes inflation. Nobody
wants to pay higher prices for
[336]
anything really,
[338]
economists believe that
expectations are the primary
[341]
driver of inflation.
[342]
When people think inflation is
going to be high for a long
[345]
time, they're gonna say, Hey,
Mr. employer, you got to pay me
[348]
a bigger gotta give me a bigger
pay increase because inflation
[351]
is going to be high. And the
businessman says if he thinks
[354]
that he or she thinks inflation
is going to be high, as they
[356]
find no problem, I'll give you
the bigger pay increase, but and
[359]
then I'll pass along the higher
price increase to consumers. And
[362]
then lo and behold, people's
expectations, their views of the
[366]
future inflation actually
results in higher inflation.
[369]
That's the problem.
[370]
A wage raise means a
corresponding rise in prices,
[373]
unless productivity is increased
proportionately. What do you
[377]
want a guy with forearms.
[379]
But even people within the Fed
think these models are broken.
[382]
In September 2021, a senior
economist at the Board of
[385]
Governors published a paper it
was titled, Why do we think that
[390]
inflation expectations mattered
for inflation?
[392]
That's definitely a non
consensus view.
[396]
The paper argues that the field
of mainstream economics provides
[400]
cover for a quote, criminally
oppressive, unsustainable, and
[404]
unjust social order. The paper
reflects the views of a wider
[407]
movement of people who think the
Fed needs reform.
[410]
There was an internal debate
inside the Fed in 2008, in 2009,
[415]
in 2010, why did we miss the
financial crisis? Why did we
[419]
miss the subprime crisis, and it
was determined at the time that
[422]
the feds inflation model really
was broken, because had it
[427]
incorporated securities prices
had it improperly incorporated
[430]
that the price of housing
residential real estate, then
[434]
the Fed wouldn't have been
blindsided ahead of the
[437]
financial crisis. So what they
did after writing all these
[439]
internal white papers and
determining that they needed a
[442]
new inflation regime was
nothing. And because they needed
[447]
this broken model to hide
behind, which systematically
[451]
understates inflation, so that
they could keep easier monetary
[456]
policy than they would otherwise
to prop up the stock market.
[459]
Many people who watched the Fed
cite breakdowns in models like
[462]
the Phillips Curve. The Phillips
Curve is a model that economists
[465]
use to make interest rate
decisions. The model contains
[468]
two inputs, inflation rates, and
employment data, various forces
[473]
shift where the economy is along
the curve at any point. When the
[477]
employment indicators point to a
tight labor market, the plot of
[481]
the Phillips curve shifts to the
left. That means that there are
[485]
more jobs open than there are
workers to fill the roles. That
[489]
also increases the pressure on
employers to raise wages, which
[493]
means higher rates of inflation.
The Fed can control inflation,
[496]
when it's coming from the labor
market.
[498]
Their main tool for doing that
is the federal funds rate. And
[503]
by lowering that rate, it tends
to help to spur economic growth
[507]
and job creation. And when they
raise that rate, it tends to
[511]
slow that growth and the
resulting job creation. The
[516]
reason for doing that would be
if there were concerns about
[521]
inflation going too fast or
potentially getting out of
[524]
control, because the
unemployment rate is too low,
[529]
and starting to put upward
pressure on prices. Because
[533]
there is upward pressure on.
[537]
Some economists believe that in
2019, the official models
[540]
produced an error that year,
unemployment dropped to 3.5%.
[545]
When unemployment gets this low,
the Phillips curve tells us that
[549]
prices should start to rise. The
Fed started to hike interest
[553]
rates before sending them back
down in the pandemic.
[556]
I think one of the things that
we have learned coming out of
[560]
that recession and more recently
is that the economy has probably
[568]
been further from what would be
a genuine level of full
[574]
employment.
[574]
Some say that the failure to
lift off interest rates is a
[577]
mistake that the country will
have to pay for in the future.
[580]
Jay Powell in 2018 2019, found
out that he couldn't raise
[584]
interest rates so he failed to
get interest rates to his his
[588]
own personal state at targeted
3%. He never got to when you
[593]
have a federal reserve that one
cycle after another. They try to
[599]
resolve An underlying issue of
over indebtedness, whether it
[603]
was the household sector before
the financial crisis, or the
[606]
corporate sector before Covid
hit, every time they have a
[610]
crisis hit, they try and solve
the problem of over
[613]
indebtedness. By putting more
debt into the economy. Others
[616]
still
[616]
believe that the country is in
an extraordinary time that calls
[619]
for emergency measures,
[621]
the current environment that we
find ourselves in is extremely
[625]
unusual. All of that really is
affecting inflation in a way
[630]
that we wouldn't typically see,
during the normal course of how
[635]
the economy functions.
[636]
In recent decades, outside
forces changed labor in
[639]
fundamental ways,
[640]
when unions were a force to be
reckoned with. And when
[645]
employees had the upper hand,
then there was a very tight
[649]
relationship between inflation
and wage inflation. So you can
[654]
have this spiral of rising wages
when we started to de unionize
[660]
the country, when employers
started to outsource to India
[664]
and other countries and started
exporting deflation, because its
[668]
labor was so much cheaper. All
of these elements ended up
[673]
giving employers, the upper hand
over employees in America. So
[678]
the efficacy of the Phillips
Curve started to become kind of
[681]
outmoded. And there wasn't this
immediate feedback effect from
[686]
rising prices into rising wages,
[690]
policy decisions, informed by
models, like the Phillips Curve
[693]
have had a real impact on
American workers.
[695]
The wages and benefits of a
typical worker were suppressed
[700]
in that period for decades after
1979. Why is that? Well, it's
[705]
not because the economy was
doing poorly or because of
[707]
automation, or because of low
productivity growth. In fact, it
[711]
was because of policies, which
generated a situation where
[716]
wages were suppressed excessive
unemployment because of failed
[719]
macroeconomic policy, monetary
and fiscal policy to the bashing
[724]
of unions to decline in union
membership, that failure to
[727]
increase the minimum wage and
along with inflation, various
[730]
new policies of corporations,
forcing people to sign non
[734]
competes and forced arbitration
agreements.
[736]
As a result, leaders are making
adjustments to prepare for the
[739]
new normal and longer term
[741]
inflation expectations, which we
have long seen as an important
[744]
driver of actual inflation. And
global disinflationary
[748]
pressures, may have been holding
down inflation more than was
[752]
generally anticipated
[753]
president by nominated Powell
for a second term, hoping that
[757]
would help the Fed maintain its
independence by nominating
[759]
Jerome Powell. That'll be
important, as the group embarks
[762]
on a new and unusual decade.
[764]
So I think the strategy that the
Fed is now pursuing is the
[767]
stated stated strategy is to try
to keep the job market really
[771]
tight, really strong, you know,
for an extended period. And that
[775]
means then you'll see stronger
wage gains across all income
[778]
groups, but particularly low
wages. But it's, it's a tricky
[781]
thing, and you know, very
difficult to pull off,
[784]
the Fed has kept interest rates
near zero for more than a
[786]
decade. And the outlook suggests
that it will keep rates low for
[789]
the foreseeable future. That's
because the United States and
[792]
countries around the world have
failed to hit their inflation
[795]
targets. In recent years,
[796]
the Fed itself was incapable
before of creating inflation. It
[802]
was quote, unquote, pushing on a
string. So it said, you know,
[806]
we're going to allow inflation
to run hot going forward, so
[809]
that we can try and, and balance
out all of these years of not
[815]
being able to produce the
inflation that we said we wanted
[817]
to target a being underneath
that 2% target for so many
[821]
years.
[822]
In other words, if the temporary
bottlenecks caused by the
[824]
pandemic and its supply chain
disruptions fade, will need to
[828]
keep interest rates low to keep
the economy afloat. Some say the
[831]
Fed may be better off pursuing a
higher long term inflation
[834]
target, possibly of 3% that can
fight the expectations of
[838]
sluggish future growth.
[840]
I think that deflationary forces
will continue to be a force,
[843]
especially up the income ladder,
now that you can put an entire
[847]
law library into a little chip
of big data. You don't need a
[851]
paralegal in the United States,
you can get a paralegal in
[853]
India. So higher income paying
jobs right now are the ones that
[858]
are at risk of being sent over
shores and nobody's talking
[862]
about that you're actually going
to have inflation in terms of
[866]
the amount of education you need
in America, you're going to need
[870]
that graduate degree to have the
pure certainty of income
[874]
security going forward, because
you're going to need that next
[876]
skills level up, because a lot
of jobs that require a
[880]
bachelor's degree are going to
go away. So that disinflationary
[884]
impulse is going to be there.
[885]
But in the short term, the Fed
and the entire country, we'll
[888]
wait to see if these price
spikes calm. There's no
[891]
obvious direct way the Fed can
help. Really, the onus I think,
[896]
is on Congress and
administration lawmakers do have
[900]
the tools the ability I don't
[902]
think that the American rescue
plan created this crisis or that
[908]
the Fed's monetary policy has
created the inflation problem,
[913]
their ability to change. The
interest rate would do something
[919]
it would slow the pace of the
recovery
Most Recent Videos:
You can go back to the homepage right here: Homepage