[ad_1]
Jump in U.S. annual consumer price index rose to 4.2% The report last week was shocking. But is this a good reason to cause panic? Not obvious, because special factors can explain this. It used to be like this: when inflation starts to rise, special factors can always explain it. But in fact, the main cause of concern is not what is currently happening, but the political forces at work.
Naturally, economic power determines these political choices. These forces are currently confusing. The unexpected weakness of the employment report led to an unexpectedly large increase in consumer prices: last month, The United States only added 266,000 jobs, while the unemployment rate rose slightly to 6.1%. The obvious explanation is that this is a recovery from an unprecedented recession, and the reason is not austerity, but supply disruption.
Goldman Sachs pointed out that the direct cause of this increase was travel and related services. Prices rebounded from depressed levels. The surge in demand for certain goods after the pandemic has caused temporary shortages and bottlenecks.
Jason Furman of the Peterson Institute for International Economics It is worth noting that although the vacancy rate in February 2021 is higher than in any month since 2001, employment is still 10 million jobs lower than the pre-pandemic trend in April. This once again shows that labor supply continues to be disrupted after the pandemic. Unprecedented shocks inevitably make data difficult to interpret and performance unpredictable.
This uncertainty also applies to commodity prices. They jumped up. However, according to historical standards, the price is not high, far below the peak in the past.
At the same time, the “break-even rate” (that is, the difference between the traditional U.S. Treasury yield and the inflation index U.S. Treasury yield) has risen sharply, although it has only risen to 2.5% in the past decade. This shows that inflation expectations have risen and concerns about inflation risks.Bloomberg’s John Authers points out The forecasts of consumers and professional forecasters have also improved, with the former expecting the inflation rate to be close to 6% and 3% next year.
It can be concluded that inflation expectations are rising.However, at the current level, they will not pay too much attention to the Fed because Federal Reserve Chairman Jay Powell said in August last year“Over time, we will strive to achieve an average inflation rate of 2%. Therefore, after a period in which the inflation rate has been below 2%, appropriate monetary policy may increase the inflation rate for a period of time. Moderately higher than 2% is the target.” Since the inflation rate has not reached the target cumulatively since 2007, it has fallen by 5 percentage points cumulatively, so this can prove that the inflation rate in 5 years is 3%, and then back 2%.
Therefore, we should remain calm, knowing that short-term performance reflects the unpredictability after the pandemic, and that rising inflation expectations are ordered by the Fed? Yes, to a certain extent. The real concern is more far-reaching and longer-term.
First of all, according to historical standards, both monetary policy and fiscal policy are set Crazy expansion, Although the interest rate is close to zero, the currency growth is abnormal and the fiscal deficit is huge, even if The International Monetary Fund said that the U.S. economy will operate faster than expected this year.
Second, there is a lot of private savings waiting to be spent, and there is definitely a strong desire to return to normal life. Perhaps this will not be the “roaring 2020s.” But they may be more dynamic economically than most people think.
Third, although I understand why the Federal Reserve changed its monetary framework, I have no doubt that this is a good idea. This means looking into the rearview mirror while driving. We must learn how the economy works from past experience, instead of trying to make up for historical failures directly. In particular, the new framework has created uncertainty about how the Fed intends to fill the gap in the past.
The fourth and most important thing is that politics has changed. An adult must be at least 60 years old to experience high inflation and subsequent inflation. The government and a large number of private sectors have huge debt liabilities and borrowing plans. Joe Biden’s administration is determined to ensure that this recovery does not repeat the last disappointment.This The stock market is overpriced According to historical standards, there are bubbles everywhere. “Modern monetary theory“It’s also very influential. All these add up to increase the ability to lobby for cheap currencies and huge fiscal deficits, and weaken the persuasiveness of prudence.
With all this in mind, the suspicion of the Fed is reasonable. We know that it is easier to relax politically than to tighten monetary policy. Currently, the latter will be particularly unpopular.However, if the central bank does not do this Before the party, please take away the punch bowl, It must get rid of people who are addicted to it.That’s painful: it takes one Paul Walker.
Milton Friedman stated that “inflation is a monetary phenomenon everywhere.” This is wrong: inflation is a political phenomenon everywhere. The question is whether society wants low inflation. It is reasonable to doubt this today.This is also reasonable Doubt the deflationary momentum of the past three decades The work is so powerful now. It’s hard to believe that these emergency monetary policies will last for several years. Many people at the Federal Reserve think. I doubt if they should continue till now.
[ad_2]
Source link
