Services inflation is out of control. The haircut that was 25 last July is now 35. The acupuncture session that was 42 last July is now 50. The deductible at the Chiropractor is now 20, last July it was 15. The $100 oil change is now $120. The list is endless.
It’s all crap. Actual inflation, the real destruction of purchasing power that people feel at the end of the month is running 8-12% per year. And has been since 2019.
Whether they are retired or not, 90% live on an income that is fixed. And the actual purchasing power of that income has been literally and figuratively obliterated over the past 5 years. The fact that the 15,000 Viking stove your wife covers is the same price as a year ago is irrelevant to the rest of us.
Interest rates need to go up. Not down. Govt measured inflation has now been above the 2% target for nearly 5 straight years. Every month of those years.
Oh. And BTW. The amended Fed Reserve Act of 1977 mandates “stable prices”. To every person with an IQ above 50 (except bureaucrats and academics) stable prices means zero. Not 2%
Powell should be fired. But not for his ‘failure’ to
Lower rates.
I respect your work. But you are not dealing in reality.
I actually disagree with your last comment. He is dealing with reality much more than you are. Yes, there are inflationary pressures - but tariffs aren't why. It is because the fed gov won't stop spending. If you increase rates right now - which is what classic monetary policy might expect, you will throw the country into recession - and maybe worse. The fed frequently blows it and their delay in rate decisions have played into previous economic downturns. We are seeing the underpinnings of some decent economic data - but it is a bit spotty. The labor market is ok - but not humming along like we need it to. 2nd qtr GDP estimates are also OK, but need to be higher. We are currently at a very unique time in our political economic history. Powell is the wrong guy for the job because he is prescribing historical actions that will not work, and his public pronouncements are covering for what the real problem is. He knows better.
Fine. But rates have been artificially low since the 1987 recession. The economy was not allowed to self correct then. Or in 2000. Or in 2008. Or in 2013. And not in 2020, with the FED still buying MBS deep into 20/3. That alone should get Powell fired.
Essentially what you are advocating for is a continuation of policies that drive inequality, funnel the created dollars to those that don’t need them, screw retirees and savers, push asset and housing prices farther out of reach of younger generations, and continue the same misguided and destructive policies that have helped bring us to where we are.
I’m guessing you are talking your book and you stand to benefit from lower rates. That’s fine. But capital needs to be scarce and rates need to reflect that scarcity. Lowering rates to keep zombie firms in business while punishing those trying to to save money for their future is not just misguided, it’s criminal.
Personally for me it doesn't really matter - outside of whatever the economy's impact is on investment. But saving money for the future is pretty weak kneed when prime is around 7.5% and savings accounts are at 1%. Yes - a CD is at 4-4.5 for a year. And there is nothing wrong with putting money in one as a diversified strategy. But the money is now unavailable for a year. I can find multiple companies paying dividends in excess of 5% - and I'm liquid.
The issue in my mind is the reluctance of Powell to tell the truth. I fully recognize the danger in a rate cut. I also fully realize the danger in keeping rates too tight -and the economic conditions that exist on the ground do not support rates at this level. The money printing required to support the debt and our servicing of it is the only thing justifying keeping rates where they are - yet those very rates threaten the entire debt servicing. We are in a very unique situation.
If Powell wants to stick to his guns and blame tariffs because he thinks that is a politically plausible he can do that. But it opens him up to criticism from within his own committee, and it is happening because the facts on the ground about the strength of the economy are a bit mixed. And also because tariffs are not inflationary and everyone who really knows, knows this to be true. If Powell would come out and say interest rates are high because federal spending is way too high, and unless we get meaningful spending reductions, rates will have to stay high, I would support his to the moon.
He just had a chance to do that - and refused. If he won't own up to what is really going on I don't buy what he is selling. Rates are too high.
"The only way to outrun that is grow production faster"
It's not the only way but is a good way. Keeping interest rates elevated will crush demand which will lower inflation. If the FED lowers rates it will reignite inflation.
They really painted themes selves in a corner. Like someone going out and maxing there credit card, this has been years in the making and has been dumped in Trump's lap.
I voted for Trump 3 times, my biggest complaint on Trump is his hard on for low interest rates and cheap money. That cheap money crushes the poor and middle class, they are the ones who pay through inflation.
Depends on how inflation is measured. We cannot trust what the government says or what the goons at the Fed say. On my trip to the local Wallyville yesterday, the shelves are well stocked (all around the store) and thus the supply of goods appears to be buoyant.
I recall many saying that there will be no goods from China in the stores. However, food prices are still rising. I expect my rent to go up another 10% by the end of the year. Medical services sure aren't getting cheaper. Car repairs? Give me a break. Inflation strictly depends upon the level and type of goods and services you need and consume as an individual. There is NO one size fits all.
It is inevitable those goods will also increase in cost. Manufacturers cannot eat tariffs forever as their costs are also increasing. I believe no one really knows how many goods were shipped here and on the way before tariffs were imposed, so I suspect most things in the store are from that inventory. Once that is gone, watch the prices move up.
"In a recent interview with Larry Kudlow, Treasury Secretary Bessent claimed tariffs "cannot be inflationary."
Because unless you're printing money, when the price of one thing goes up the price of everything else goes down since people have less money to spend on the other stuff. "
Americans will be poorer, in other words. It is all theoretical for the rich like Bessent because their choices won't be affected. When prices go up, the effect for most Americans is no different than inflation. The Chinese make many items no one else can make as cheaply, so they can increase the price and Americans become poorer. Pretending other affected industries or businesses are going to cut prices anywhere near the price increases is an illusion.
Lastly, tariffs were never designed to bring in industry but to protect existing American industries. The 2018 examples do not work because those were not so broad or deep and didn't affect every country. We are also shooting ourselves in the foot. We have a trade surplus with Brazil, but this is likely to evaporate given Trump's idea of using tariffs to affect their internal political processes. Brazil will, no doubt start buying their goods and services elsewhere. Is this winning?
There is one set of policies in place which is highly anti-inflationary and it isn't getting nearly enough attention. The effect of Trump's deregulatory policies will swamp whatever minor effect we'll see from tariffs. Just the neutering of CARB alone is likely worth a few basis points per annum as auto builders can relax their investment in unpopular EVs. Unfortunately, what little analysis there has been on this area suffers from lack of imagination - a focus on visible, direct costs of regulation, which ignore the effect from reduced opportunity costs.
(I have a post on airline deregulation in the works. Airline tickets today are roughly on par with *nominal* prices of seventy years ago. That's zero inflation in a *service* industry!)
Bessent is pretty much completely correct. Tariffs are a tax, and no tax has ever been defined as any thing other than a drag on the economy. The bigger issue (as you noted) is the government continues to spend like a drunken sailor, forcing the printing of paper to support it. I am not surprised that Trump's M2 is higher, because he has been left with a larger deficit to finance than Biden had. The next president has the potential to have even a bigger problem.
Congress's struggle to cut a measly 9-10 billion dollars of spending shows what we are up against. The administration's court success means that reducing federal headcount will make some impact, but there is precious little support in DC for cutting anything because it of course it reduces their wealth and power.
Powell's reluctance to call out what is directly impacting our economic future is the most frustrating. He knows tariffs don't drive inflation - and he is unwilling to call out what actually is driving it today (govt spending), because the world he supports and the people he identifies with can't support Trump's spending vision because to do so would validate Trump. Can't have that. Our elites are willing to drive the entire country into the ditch because they are unwilling to give Trump a political victory. Powell should be replaced. He is clearly lying to the US public.
Peter, also just read in interesting article on the tariffs from a writer, Gerry O'Neill in Ireland that I follow as well who usually doesn't write about economics much. It has to do with the stockpiling of goods - "153% increase in Irish Exports to US indicate the end is nigh." - https://westawake.substack.com/p/153-increase-in-irish-exports-to
Interesting insight and angle that you don't always hear about in the tariff discussion.
It may be true that tariffs won't cause M2 to increase, driving an increase in CPI (a GENERAL increase in prices). But they certainly will cause specific prices to increase; that's their very purpose. So they distort the market. That's bad overall.
Tariffs also divert funds away from the market and to the gov't. Again, bad overall.
Net result is a worse economy and poorer Americans.
The only "way out" is drastic spending cuts, a la Milei. The rest is musical chairs.
Services inflation is out of control. The haircut that was 25 last July is now 35. The acupuncture session that was 42 last July is now 50. The deductible at the Chiropractor is now 20, last July it was 15. The $100 oil change is now $120. The list is endless.
It’s all crap. Actual inflation, the real destruction of purchasing power that people feel at the end of the month is running 8-12% per year. And has been since 2019.
Whether they are retired or not, 90% live on an income that is fixed. And the actual purchasing power of that income has been literally and figuratively obliterated over the past 5 years. The fact that the 15,000 Viking stove your wife covers is the same price as a year ago is irrelevant to the rest of us.
Interest rates need to go up. Not down. Govt measured inflation has now been above the 2% target for nearly 5 straight years. Every month of those years.
Oh. And BTW. The amended Fed Reserve Act of 1977 mandates “stable prices”. To every person with an IQ above 50 (except bureaucrats and academics) stable prices means zero. Not 2%
Powell should be fired. But not for his ‘failure’ to
Lower rates.
I respect your work. But you are not dealing in reality.
I actually disagree with your last comment. He is dealing with reality much more than you are. Yes, there are inflationary pressures - but tariffs aren't why. It is because the fed gov won't stop spending. If you increase rates right now - which is what classic monetary policy might expect, you will throw the country into recession - and maybe worse. The fed frequently blows it and their delay in rate decisions have played into previous economic downturns. We are seeing the underpinnings of some decent economic data - but it is a bit spotty. The labor market is ok - but not humming along like we need it to. 2nd qtr GDP estimates are also OK, but need to be higher. We are currently at a very unique time in our political economic history. Powell is the wrong guy for the job because he is prescribing historical actions that will not work, and his public pronouncements are covering for what the real problem is. He knows better.
Fine. But rates have been artificially low since the 1987 recession. The economy was not allowed to self correct then. Or in 2000. Or in 2008. Or in 2013. And not in 2020, with the FED still buying MBS deep into 20/3. That alone should get Powell fired.
Essentially what you are advocating for is a continuation of policies that drive inequality, funnel the created dollars to those that don’t need them, screw retirees and savers, push asset and housing prices farther out of reach of younger generations, and continue the same misguided and destructive policies that have helped bring us to where we are.
I’m guessing you are talking your book and you stand to benefit from lower rates. That’s fine. But capital needs to be scarce and rates need to reflect that scarcity. Lowering rates to keep zombie firms in business while punishing those trying to to save money for their future is not just misguided, it’s criminal.
Personally for me it doesn't really matter - outside of whatever the economy's impact is on investment. But saving money for the future is pretty weak kneed when prime is around 7.5% and savings accounts are at 1%. Yes - a CD is at 4-4.5 for a year. And there is nothing wrong with putting money in one as a diversified strategy. But the money is now unavailable for a year. I can find multiple companies paying dividends in excess of 5% - and I'm liquid.
The issue in my mind is the reluctance of Powell to tell the truth. I fully recognize the danger in a rate cut. I also fully realize the danger in keeping rates too tight -and the economic conditions that exist on the ground do not support rates at this level. The money printing required to support the debt and our servicing of it is the only thing justifying keeping rates where they are - yet those very rates threaten the entire debt servicing. We are in a very unique situation.
If Powell wants to stick to his guns and blame tariffs because he thinks that is a politically plausible he can do that. But it opens him up to criticism from within his own committee, and it is happening because the facts on the ground about the strength of the economy are a bit mixed. And also because tariffs are not inflationary and everyone who really knows, knows this to be true. If Powell would come out and say interest rates are high because federal spending is way too high, and unless we get meaningful spending reductions, rates will have to stay high, I would support his to the moon.
He just had a chance to do that - and refused. If he won't own up to what is really going on I don't buy what he is selling. Rates are too high.
1000% "Interest rates need to go up. Not down."
"The only way to outrun that is grow production faster"
It's not the only way but is a good way. Keeping interest rates elevated will crush demand which will lower inflation. If the FED lowers rates it will reignite inflation.
They really painted themes selves in a corner. Like someone going out and maxing there credit card, this has been years in the making and has been dumped in Trump's lap.
I voted for Trump 3 times, my biggest complaint on Trump is his hard on for low interest rates and cheap money. That cheap money crushes the poor and middle class, they are the ones who pay through inflation.
Depends on how inflation is measured. We cannot trust what the government says or what the goons at the Fed say. On my trip to the local Wallyville yesterday, the shelves are well stocked (all around the store) and thus the supply of goods appears to be buoyant.
I recall many saying that there will be no goods from China in the stores. However, food prices are still rising. I expect my rent to go up another 10% by the end of the year. Medical services sure aren't getting cheaper. Car repairs? Give me a break. Inflation strictly depends upon the level and type of goods and services you need and consume as an individual. There is NO one size fits all.
It is inevitable those goods will also increase in cost. Manufacturers cannot eat tariffs forever as their costs are also increasing. I believe no one really knows how many goods were shipped here and on the way before tariffs were imposed, so I suspect most things in the store are from that inventory. Once that is gone, watch the prices move up.
"In a recent interview with Larry Kudlow, Treasury Secretary Bessent claimed tariffs "cannot be inflationary."
Because unless you're printing money, when the price of one thing goes up the price of everything else goes down since people have less money to spend on the other stuff. "
Americans will be poorer, in other words. It is all theoretical for the rich like Bessent because their choices won't be affected. When prices go up, the effect for most Americans is no different than inflation. The Chinese make many items no one else can make as cheaply, so they can increase the price and Americans become poorer. Pretending other affected industries or businesses are going to cut prices anywhere near the price increases is an illusion.
Lastly, tariffs were never designed to bring in industry but to protect existing American industries. The 2018 examples do not work because those were not so broad or deep and didn't affect every country. We are also shooting ourselves in the foot. We have a trade surplus with Brazil, but this is likely to evaporate given Trump's idea of using tariffs to affect their internal political processes. Brazil will, no doubt start buying their goods and services elsewhere. Is this winning?
There is one set of policies in place which is highly anti-inflationary and it isn't getting nearly enough attention. The effect of Trump's deregulatory policies will swamp whatever minor effect we'll see from tariffs. Just the neutering of CARB alone is likely worth a few basis points per annum as auto builders can relax their investment in unpopular EVs. Unfortunately, what little analysis there has been on this area suffers from lack of imagination - a focus on visible, direct costs of regulation, which ignore the effect from reduced opportunity costs.
(I have a post on airline deregulation in the works. Airline tickets today are roughly on par with *nominal* prices of seventy years ago. That's zero inflation in a *service* industry!)
Bessent is pretty much completely correct. Tariffs are a tax, and no tax has ever been defined as any thing other than a drag on the economy. The bigger issue (as you noted) is the government continues to spend like a drunken sailor, forcing the printing of paper to support it. I am not surprised that Trump's M2 is higher, because he has been left with a larger deficit to finance than Biden had. The next president has the potential to have even a bigger problem.
Congress's struggle to cut a measly 9-10 billion dollars of spending shows what we are up against. The administration's court success means that reducing federal headcount will make some impact, but there is precious little support in DC for cutting anything because it of course it reduces their wealth and power.
Powell's reluctance to call out what is directly impacting our economic future is the most frustrating. He knows tariffs don't drive inflation - and he is unwilling to call out what actually is driving it today (govt spending), because the world he supports and the people he identifies with can't support Trump's spending vision because to do so would validate Trump. Can't have that. Our elites are willing to drive the entire country into the ditch because they are unwilling to give Trump a political victory. Powell should be replaced. He is clearly lying to the US public.
Tourism is down 12 % so this might push inflation lower for now...??
What about the California fires, the re building should create lots of " sudden inflation 2 as x 1000 s rebuild " greener" OR move out of Gavin town.
Probably won't know the full effect until the 90 day pause end on July 31. Plus they seem to change all the time.
Peter, also just read in interesting article on the tariffs from a writer, Gerry O'Neill in Ireland that I follow as well who usually doesn't write about economics much. It has to do with the stockpiling of goods - "153% increase in Irish Exports to US indicate the end is nigh." - https://westawake.substack.com/p/153-increase-in-irish-exports-to
Interesting insight and angle that you don't always hear about in the tariff discussion.
Inflation v. Tariffs is the wrong framework..
It may be true that tariffs won't cause M2 to increase, driving an increase in CPI (a GENERAL increase in prices). But they certainly will cause specific prices to increase; that's their very purpose. So they distort the market. That's bad overall.
Tariffs also divert funds away from the market and to the gov't. Again, bad overall.
Net result is a worse economy and poorer Americans.
The only "way out" is drastic spending cuts, a la Milei. The rest is musical chairs.