Current Inflation Index Reports and Fed Policy/Actions

[Closet_Gamer]

Can we move the in depth tariff policy discussions to another thread?

During Covid, didn’t we have something called the “Covid Containment Area” to keep it from overwhelming all the other threads?

Maybe something similar would help for the tariff policy discussions?

 

[Flieger]

Saw this chart today which makes it more clear to me that "oh 10% across the board" is really not it, and the 90 day pause, also, really, not, when weighted for imports by country.
View attachment 55130

Well, they did say for "those that did not retaliate". Mexico and Canada did, so no 10% for them.

Flieger

 

[audreyh1]

You're fighting a losing battle. When do we ever have a straight line in our discussions?

Apparently I am. There are already so many threads on tariffs. But regardless people are talking about them everywhere else to. I’ll go back to posting when there is a report of the Federal Reserve has something to say.

 

[MichaelB]

The PCE report is the inflation report that the Fed follows most closely.

The Fed also looks at inflation expectations. So far the Fed measures have held steady, but the University of Michigan Survey of Consumers is showing rising expected inflation. The Fed will increase rates based on current high inflation or rising expectations.

 

[copyright1997reloaded]

Things I keep hearing/reading:
1. "Tariffs cause inflation"
2a. "The Smoot-Hawley act (tariffs) caused the market to crash and the depression" or 2b) "The Smoot-Hawley act" caused the depression to deepen/get worse.

2a is impossible because the market crash (Oct 29) proceeded the Smoot-Hawley act (June of 1930).

1 & 2b in combination is interesting to me (i.e. non-sensical) because prices fell during the depression.

Ergo, believing the mantra that "tariffs cause inflation" is suspect.
Why?

Because peoples incomes are limited - if prices for a set of goods go up because of tariffs they will a) try to substitute other goods, b) buy less of the good (shift of the supply price curve), c) buy less of OTHER goods because they have less to spend. All of these will happen, along with eventual increase in domestic supply (based on price elasticity for those producers and time lag to create that additional supply). But since peoples incomes are limited the result will be a DECREASE in demand, not only for the tariff'd good but also for some other goods/services because of less income available. This is why tariffs "helped" to further lessen overall economic activity and demand during the great depression.

This is fundamentally different than what happened during covid. Then, the supply line shock to the economy (higher prices for input goods and lessened demand due to loss of jobs/temporary shutdown of the economy) was offset in part (or maybe even more than in full) by government stimulus. It is because of those factors (shift supply curve due to production shutdowns and shift in demand curve due to stimulus/expansion of the money supply) that resulted in higher prices (inflation).

Are tariffs good? No...but I am questioning (somewhat) the given (as espoused by many out there that tariffs automatically result in a burst of inflation.

 

[copyright1997reloaded]

The Fed also looks at inflation expectations. So far the Fed measures have held steady, but the University of Michigan Survey of Consumers is showing rising expected inflation. The Fed will increase rates based on current high inflation or rising expectations.

FWIW: Goldman Sachs has been discussing flaws with the U Mich methodology (for some time now I believe), and that the U Mich survey should be discounted due to "Three Major Inaccurate Factors: Partisan Strife, Party Composition, and Survey Methodology". Ugh: I can't find the actual GS discussion, only AI generated summaries. I would like to read what the've actually written.

 

[MichaelB]

FWIW: Goldman Sachs has been discussing flaws with the U Mich methodology (for some time now I believe), and that the U Mich survey should be discounted due to "Three Major Inaccurate Factors: Partisan Strife, Party Composition, and Survey Methodology". Ugh: I can't find the actual GS discussion, only AI generated summaries. I would like to read what the've actually written.

I haven’t seen the GS paper but would not be surprised. I think the Fed relies much more on their own surveys of expected inflation.

 

[jebmke]

I haven’t seen the GS paper but would not be surprised. I think the Fed relies much more on their own surveys of expected inflation.

or the implied rate from nominal and real yield curves

 

[HFWR]

or the implied rate from nominal and real yield curves

Believe what I do, not what I say.

 

[Koolau]

Things I keep hearing/reading:
1. "Tariffs cause inflation"
2a. "The Smoot-Hawley act (tariffs) caused the market to crash and the depression" or 2b) "The Smoot-Hawley act" caused the depression to deepen/get worse.

2a is impossible because the market crash (Oct 29) proceeded the Smoot-Hawley act (June of 1930).

1 & 2b in combination is interesting to me (i.e. non-sensical) because prices fell during the depression.

Ergo, believing the mantra that "tariffs cause inflation" is suspect.
Why?

3. In 1929 the FED raised the discount rate to 6% in an effort to curtail the run-away stock market - but there was no current monetary inflation (maybe a little deflation). IOW the FED actions took away 1/3 of the money in the system even though there was no inflation to fight. Deflation accelerated and the GD ensued.

 

[jm67]

Things I keep hearing/reading:
1. "Tariffs cause inflation"
2a. "The Smoot-Hawley act (tariffs) caused the market to crash and the depression" or 2b) "The Smoot-Hawley act" caused the depression to deepen/get worse.

2a is impossible because the market crash (Oct 29) proceeded the Smoot-Hawley act (June of 1930).

1 & 2b in combination is interesting to me (i.e. non-sensical) because prices fell during the depression.

Ergo, believing the mantra that "tariffs cause inflation" is suspect.
Why?

Because peoples incomes are limited - if prices for a set of goods go up because of tariffs they will a) try to substitute other goods, b) buy less of the good (shift of the supply price curve), c) buy less of OTHER goods because they have less to spend. All of these will happen, along with eventual increase in domestic supply (based on price elasticity for those producers and time lag to create that additional supply). But since peoples incomes are limited the result will be a DECREASE in demand, not only for the tariff'd good but also for some other goods/services because of less income available. This is why tariffs "helped" to further lessen overall economic activity and demand during the great depression.

This is fundamentally different than what happened during covid. Then, the supply line shock to the economy (higher prices for input goods and lessened demand due to loss of jobs/temporary shutdown of the economy) was offset in part (or maybe even more than in full) by government stimulus. It is because of those factors (shift supply curve due to production shutdowns and shift in demand curve due to stimulus/expansion of the money supply) that resulted in higher prices (inflation).

Are tariffs good? No...but I am questioning (somewhat) the given (as espoused by many out there that tariffs automatically result in a burst of inflation.

Nobody ever said that Smoot-Hawley caused the stock market to collapse. What the tariffs did was help turn a severe recession into a prolonged depression by curtailing trade.

 

[Closet_Gamer]

Things I keep hearing/reading:
1. "Tariffs cause inflation"
2a. "The Smoot-Hawley act (tariffs) caused the market to crash and the depression" or 2b) "The Smoot-Hawley act" caused the depression to deepen/get worse.

2a is impossible because the market crash (Oct 29) proceeded the Smoot-Hawley act (June of 1930).

1 & 2b in combination is interesting to me (i.e. non-sensical) because prices fell during the depression.

Ergo, believing the mantra that "tariffs cause inflation" is suspect.
Why?

Because peoples incomes are limited - if prices for a set of goods go up because of tariffs they will a) try to substitute other goods, b) buy less of the good (shift of the supply price curve), c) buy less of OTHER goods because they have less to spend. All of these will happen, along with eventual increase in domestic supply (based on price elasticity for those producers and time lag to create that additional supply). But since peoples incomes are limited the result will be a DECREASE in demand, not only for the tariff'd good but also for some other goods/services because of less income available. This is why tariffs "helped" to further lessen overall economic activity and demand during the great depression.

This is fundamentally different than what happened during covid. Then, the supply line shock to the economy (higher prices for input goods and lessened demand due to loss of jobs/temporary shutdown of the economy) was offset in part (or maybe even more than in full) by government stimulus. It is because of those factors (shift supply curve due to production shutdowns and shift in demand curve due to stimulus/expansion of the money supply) that resulted in higher prices (inflation).

Are tariffs good? No...but I am questioning (somewhat) the given (as espoused by many out there that tariffs automatically result in a burst of inflation.

I think this supply shock will be similar to Covid. Not identical but similar in that an incredibly complex supply chain is about to get more expensive in a broad and un-nuanced way. In Covid it was because the products literally could not reach store shelves so supply/demand pricing changed. Here it is because the products are literally being having costs added via tariff.

I completely agree that the this case offers more substitution options and all businesses will have to flex to deal with this, but for many goods and domestic production inputs in the near term there isn’t a substitute. And the Fed cannot “stimulate” our way out of goods that are longer affordable. And foreign governments, subject to their own domestic forces, may decide to change their tax policies to subsidize their companies ability to compete in the trade battle.

Plus, some sort of government “relief” from inflation in the form of a stimulus check/tax rebate cannot be ruled out.

Reagan once quipped that the Democrat economic policy in the 70s was “If it moves tax it. If it keeps moving regulate it. If it stops moving subsidize it.”

We may be about to see another version of this. “If it arrives at a port tariff it. If it keeps arriving raise the tariff. If it stops arriving send an inflation relief check.”

I smell inflation.

 

[copyright1997reloaded]

I think this supply shock will be similar to Covid. Not identical but similar in that an incredibly complex supply chain is about to get more expensive in a broad and un-nuanced way. In Covid it was because the products literally could not reach store shelves so supply/demand pricing changed. Here it is because the products are literally being having costs added via tariff.

I completely agree that the this case offers more substitution options and all businesses will have to flex to deal with this, but for many goods and domestic production inputs in the near term there isn’t a substitute. And the Fed cannot “stimulate” our way out of goods that are longer affordable. And foreign governments, subject to their own domestic forces, may decide to change their tax policies to subsidize their companies ability to compete in the trade battle.

Plus, some sort of government “relief” from inflation in the form of a stimulus check/tax rebate cannot be ruled out.

Reagan once quipped that the Democrat economic policy in the 70s was “If it moves tax it. If it keeps moving regulate it. If it stops moving subsidize it.”

We may be about to see another version of this. “If it arrives at a port tariff it. If it keeps arriving raise the tariff. If it stops arriving send an inflation relief check.”

I smell inflation.

Part of what I post are my thoughts - sometimes questioning my own positioning. I was here posting long ago when the Fed and others were out there saying inflation was transitory - and I was questioning it for a variety of reasons. I am also as of today 10.9% of my entire net worth allocated to precious metals & miners of those PM's. (Thank you run up in Gold.) I'm also very short term on fixed (with the exception of inflation protected debt). zThat is the stance of someone who thinks inflation hasn't been beaten and/or the dollar is likely to fall (and thus the value of those PM's rise). But I presented the above because, in general, the pendants of today are way too static in their analysis of what is a very dynamic system - people's responses to changes (e.g. a price jump in the price of iPhones or whatever). As you note, for some goods there are no/limited substitutes. But even for those, the buyer will have less to spend on other things, thus decreasing demand for those goods.

Ironically, the economy is being stimulated (and trade balance worsened) just by the thought of tariffs - people are front running buying of things they think will be more expensive in the future. This in of itself causes prices to rise. As students learn in Econ 101, expectation on future prices rising can cause a shift in the demand curve for that good.

As you also note, when in doubt assume those in power will take the easy way out. That way is to stimulate demand through fiscal or monetary means. That also reinforces my long term view that my biggest exposure is inflation and a decreasing buying power of my dollars. Some of it I can't control - e.g. my pension from mega-corp is not inflation adjusted and is currently about half of my base line spending. There has already been damage on that front - when I retired in 2009 my base line (limited but not extreme) budget could just about be fully funded by my mega-corp pension.

 

[HFWR]

Maybe my mistake, but a decade plus ago my SO at the time was big on gold, per her goldbug brother. Could have made out buying at $1k, but it would have taken nearly fifteen years to see the result, all the time getting no dividend for holding.

Now, at $3k+, is it a good buy, or buying at the top?

Agree that inflation seems to be the elephant in the room at the moment.

 

[Koolau]

Part of what I post are my thoughts - sometimes questioning my own positioning. I was here posting long ago when the Fed and others were out there saying inflation was transitory - and I was questioning it for a variety of reasons. I am also as of today 10.9% of my entire net worth allocated to precious metals & miners of those PM's. (Thank you run up in Gold.) I'm also very short term on fixed (with the exception of inflation protected debt). zThat is the stance of someone who thinks inflation hasn't been beaten and/or the dollar is likely to fall (and thus the value of those PM's rise). But I presented the above because, in general, the pendants of today are way too static in their analysis of what is a very dynamic system - people's responses to changes (e.g. a price jump in the price of iPhones or whatever). As you note, for some goods there are no/limited substitutes. But even for those, the buyer will have less to spend on other things, thus decreasing demand for those goods.

Ironically, the economy is being stimulated (and trade balance worsened) just by the thought of tariffs - people are front running buying of things they think will be more expensive in the future. This in of itself causes prices to rise. As students learn in Econ 101, expectation on future prices rising can cause a shift in the demand curve for that good.

As you also note, when in doubt assume those in power will take the easy way out. That way is to stimulate demand through fiscal or monetary means. That also reinforces my long term view that my biggest exposure is inflation and a decreasing buying power of my dollars. Some of it I can't control - e.g. my pension from mega-corp is not inflation adjusted and is currently about half of my base line spending. There has already been damage on that front - when I retired in 2009 my base line (limited but not extreme) budget could just about be fully funded by my mega-corp pension.

Yep. 20 years of retirement with inflation without COLA has pretty much decimated my Megacorp pension. I still accept it, of course, but it's puny compared to SS. - by a long shot. Originally, it sounded like a pretty nice supplement. Today, it's more like a "nice to have" or a "beats a stick in the eye."

 

[Onda]

I believe we're already experiencing inflation above 2.5% alongside a recession, and at this point, it seems like there's no realistic way to reverse the course.

 

[HFWR]

My pension isn’t cola’d, but it covers a significant amount of what’s left of my PITI, the mortgage portion of which is “inflation protected”. The insurance not so much, the property tax “frozen” since hitting 65.

 

[Koolau]

I believe we're already experiencing inflation above 2.5% alongside a recession, and at this point, it seems like there's no realistic way to reverse the course.

My personal inflation certainly exceeds 2.5% (officially, I think inflation is 2.4%) but "recession" has a very specific definition that we have not yet reached.