Inflation Is Unrelenting, Bad News for the Fed
and White House
That's a really bold, unsparing lede for NYT. It means Dems are going to get their clocks cleaned in a month.
Prices continued to climb at a brutally rapid pace in September, with a key inflation index increasing at the fastest rate in 40 years, bad news for the Federal Reserve as it struggles to wrestle the cost of living back under control.
Overall inflation climbed 8.2 percent over the year through September, according to the latest Consumer Price Index report on Thursday, a slight moderation from August but more than what economists had expected.
If you're investing in the accuracy of inflation projections by experts, take the over every time. These guys and gal-guys haven't been right in two years.
Even more worrisome, underlying inflation trends are headed in the wrong direction. After stripping out fuel and food — which are volatile and removed to get a better sense of the trajectory — prices climbed 6.6 percent over the year through September. That was the quickest rate since 1982.
Inflation has been rapid for a year and a half now, and it is proving stubborn even as the Fed mounts its most aggressive campaign in generations to slow the economy and bring price increases under control.
Central bankers have quickly raised interest rates from near zero to a range of 3 to 3.25 percent, and investors expect a fourth straight three-quarter-point rate increase at the Fed’s next meeting, which concludes on Nov. 2. After the release of Thursday’s inflation data, they began to bet on another large move at the central bank’s December meeting.
When it doubt take the over. Three-quarters of a point will become 7/8's or 1. Whatever the 'sperts predict for December go a leetle over that. The Fed is entering Volcker territory.
“The trend is very troubling,” said Blerina Uruci, a U.S. economist at T. Rowe Price.
Inflation is also a stumbling block [No, it's a solid brick wall and Democratic candidates in Nevanda, Arizona, Georgia, Pennsylvania and Ohio are running head on into it to fracture their skulls and kill Dem prospects. The Red Wave is upon us.] for President Biden and his fellow Democrats ahead of the midterm elections. The report on Thursday was the final Consumer Price Index release before the Nov. 8 elections, and Republicans wasted little time in excoriating Mr. Biden for his handling of the economy. While Americans are keeping up their consumption, many of the nation’s most vulnerable are struggling with rising food, fuel and housing costs — and most people are seeing their paychecks eroded by the cost increases.
Economists have predicted that the economy will slow and inflation will moderate in the months ahead. But they have been expecting an imminent cool-down for the past 18 months, and the data have repeatedly proved them wrong. Worried that rapid inflation might last, Fed officials have been clear that they plan to raise interest rates to a point where they are constraining the economy and hold them at a high level until price increases are clearly moderating. Officials have estimated that they will lift borrowing costs to about 4.6 percent by the end of 2023.
It will be more, it will by 5% by the end of 2023.
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...for now, just about every sign they are receiving from the inflation data is discouraging.
Fed policy takes time to work, and most economists would not expect this year’s adjustments to be pulling inflation drastically lower yet. But because rate moves work by slowing consumer demand, one might expect their effects to show up in everyday consumer goods and services categories first. That has yet to happen.
And the duration of the price burst is troubling. Overall inflation has been above 5 percent for a full year now, far above the central bank’s goal. The Fed aims for 2 percent annual inflation on average, which it defines using a different but related gauge: the Personal Consumption Expenditures measure, which will not be released until late October.
As rapid price increases linger, central bankers fret that consumers and businesses will grow accustomed to them. If that happens, workers might begin to demand bigger pay increases to cover their climbing costs, and employers might make large and regular price adjustments a routine part of how they operate — making fast inflation a more permanent feature of the American economy and even tougher to stamp out.
We non-economists see the path out of this circle of misery: raise interest rates suddenly and so high that employers are not even tempted to match. Workers take home pay will be slashed; some will lose their jobs entirely. It is cruel but deep-rooted inflation is even harder to up root and must be killed at the roots. It is painful and it must be done.
Consumer inflation expectations have yet to budge much in surveys. But economists said there were signs in the inflation data itself that price increases might be growing more entrenched.
“We are starting to see persistent inflation creeping into the economy,” said Steve Rick, chief economist at CUNA Mutual Group. “We are really concerned about this turning into a wage price spiral, with wages rising and making it hard to get inflation down anytime soon.”
Nope. You have to raise interest rates to choke the money available to employers to expand and employ more people and offer salaries to compensate. The prescription is choking, suffocating interest rates that kill, or almost kill the wage-price spiral and throw people out of work.
...
Those details illustrate what a sticky problem inflation has become for the Fed — and how painful it could be to resolve it.
The Fed’s policies work by making it more expensive to borrow money. As shoppers pull back and expansions become more costly to finance, businesses should hire less, the labor market should weaken, and wage growth should slow. That would reinforce the slowdown in demand.
...the risk that the central bank will induce a punishing recession that tosses many people out of work has climbed. That would particularly hurt lower-income workers, who are vulnerable to job loss and who are already suffering the brunt of inflation.
As a true blue Democrat I hate to endorce punishment on workers but it is the only way. People are going to have to lose their jobs.
“They have no choice but to try to get their arms around inflation,” said Mohamed El-Erian, chief economic adviser at Allianz. He said that the Fed was late in diagnosing inflation and too slow in reacting to it, and that he thought the economy would now pay for the central bank’s delay in responding.
“This is a self-inflicted wound that will impact the most vulnerable members of our society the most,” Mr. El-Erian said.
And that is the way it is and the way it must be.
