GDP has been growing for multiple quarters, the unemployment rate is 3.6%, and wages have been outpacing inflation for a while, and we’re hitting under 3% CPI. Core monthly CPI is at the lowest level since Feb 2021. While the other comment about “transitory” may have been sarcasm, it’s looking like the fed was right and inflation is coming under control.
Where’s the hard landing? Where’s @jack’s hyperinflation? When will doomers stop being easy marks?
Labor? No. Corporate profits? Definitely. Can't really have a labor recession when demand for workers exceeds supply, but you'll absolutely see profits compressed.
(commercial real estate and zombie enterprises still going to get hit hard with benchmark rate being held where it is, but that is a slow train wreck over the next 1-3 years as debt hits maturity walls)
Something to note is that the Fed didn't come up with 2%. They cribbed it off the bank of New Zealand two and a half decades ago. 2% might be untenable in a macro with a shrinking working force due to structural demographics (55+ participation is what is holding up US participation rate currently, and those people retire and die every day). The future is unable to repeat the past. 3-4% is probably more reasonable imho. Raising rates forever when you can't get to 2% because of fundamentals is unproductive.
> And high unemployment due to a disabled workforce
Wut? Please prove this assertion wrt the use of the word "high." [1] That's arguably a call for stronger social safety nets [2], not more disabled employment. At least a lot of these folks are able to be on Medicare ("Half of all persons with a disability were age 65 and over, nearly three times larger than the share for those with no disability.") and Social Security.
2% is an arbitrary number, yes. But the fact that there is a target, and that the target is credible is far more important than the actual value. If they changed the value now, nobody would trust the new value and it'd lose all meaning.
I agree that 2% is too low, but the only way to credibly change the number is prove they take the number seriously by getting back down to 2% before they increase it.
0% inflation is a bad thing because it encourages people to put off purchasing things. That means that people who make things lose work. Fewer people are employed; less stuff is made; the economy as a whole doesn't advance.
Low inflation is good for savers, but they'd rather have people invest money than sit on it. Inflation is a punishment for people who take their money out of the system.
The Fed aims for a gentle inflation to nudge people into buying stuff now rather than putting it off until tomorrow. The 2% figure is, very roughly, the amount of inflation that matches the expected systemic unemployment under Okun's Law. ("Laws" in economics are, of course, much less solid than they are in physics, but it does mean there's a model behind it and not just a guess.)
Quite possibly. The theory I was describing assumes indefinite economic growth. There are good reasons to think that there are limits, and we're coming up on them.
We've managed to subvert those limits in the past. Technologically, we could do that with climate change as well, though socially and politically that's much less feasible. That could well mean that we reach the limits of exponential growth sooner rather than later.
That raises an awful lot of questions that traditional economics is not prepared to answer. And a lot of people aren't going to like the answers.
IMO, the Fed should have an unemployment target, not an inflation target. They should lower rates when unemployment is high, and only be allowed to raise them when unemployment is low AND inflation is high.
Now would be a fabulous time to make that switch, since now is one of the few times where this shift in policy wouldn't result in a switch in practice.
Sorry, that meant to say “high employment due to a disabled workforce”. Text to speech error.
I don’t know opinion about the 2% rate, it’s just wet the Fed names for. They’ve said it over and over again that that’s the goal. And you can say it’s made up butt inflation at 4% is unsustainable when wages aren’t rising at the same rate. And when wages do you start to rise?
When workers organize and unionize, which they are not doing fast enough (imho) considering the leverage available to them (due to structural demographics previously mentioned).
That’s my point when inflation, rises and ploy is unionized, and we just go up. And then wages go up there’s less profit for the company so either there’s an economic downturn or there’s inflation again. So the people who control the economy are trying to balance this level between corporate profit and work or revolt. And that has been the so-called 2% sweet spot.
Here in Europe over the last two years the main contributor for inflation are corporate profits (approx. half of inflation) followed by import prices (one third) and labour cost (one quarter) according to an IMF paper [0] published three weeks ago. A historical turning point so far:
>Compared with historical averages, the rising import prices and profit parts replaced labor cost as the main counterpart to inflation over the past two years.
The paper is optimistic that labor costs will "catch up" as it always reacts more slowly but I honestly don't see much left in terms of negotiation power anymore and I think this new reality is seen as a rare opportunity to be cemented.
[Political dimension:
Paradoxically, more votes will the go to (extreme) right wing parties which historically always endorsed "authoritarian corporatism" like in the case of Melloni in Italy, now.
A more "socialist"/"solidarity"/"union" push would be understandable instead the sentiment is hijacked in a spectacular fashion by the "right" and the "left" is successfully discredited as upper middle class obsessing over "identity politics" and depicted as exuding an all permeating suspicion of the worker's class/lower classes in being susceptible to subliminal racism.]
That is not a technical recession. The Eurozone uses a definition quite similar to the US definition [0]. It's like people commenting on the internet get all of their information from other internet comments, and refuse to read actual sources. This is not ambiguous, the current definition of recession has been established for decades.
>Why doesn’t the Committee accept the two-quarter definition?
>The Committee’s procedure for identifying turning points differs from the two-quarter rule in several ways. First, we do not identify economic activity solely with real GDP, but use a range of indicators, notably employment. Second, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in activity.”
Thanks. The news articles I read last month regarding Eurozone technical recession mentioned Eurostat as their source. Eurostat themselves used the "2 quarters of declining GDP is a technical recession" line:
"The GDP decrease in the euro area is the second consecutive quarterly contraction, which means that the euro area economy is in a technical recession."
