This is effectively why imo. The similarities people see with the
Stagflation of the 1970s. We all know that the fed shit the bed last year by assuming a quick resolution to the supply chain anomalies caused by the pandemic and all the efforts to rush a floor under the economy. Inflation has been far stickier. On the one hand, lower income folks have benefitted from lots of jobs and wage growth. On the other hand, they’ve been hit hardest by inflation.
The idea is to cool the job market to arrest the wage-price spiral currently under way. That will cause pain, but the lesson of the ‘70s is pay now and get it over with, or pay later over a very extended period of time. That’s risky, because with all the apparent similarities to the ‘70s, no two periods are exactly alike, and how things are different now probably won’t be apparent until we’re looking at it in the rear view mirror.
Central banks all over the world are aware they were slow to act, and they’re now looking to prevent inflation from becoming baked into expectations. If that happens, the pain to fix it will be worse. If we’re not in a recession yet, we’re almost certainly headed for one. I think the idea is to over-correct on inflation, get the pain out of the way, and get supply-demand back to a semblance of normalcy, so inflation comes down, then rates with it, to get to a more normal environment where wage growth isn’t overwhelmed by price increases.
It sucks, but a multi-year stagflationary environment would be worse. The irony of it all - nationalism on the rise, worldwide attitudes towards immigration are negative, mostly due to nativism. Fears that cultures are under assault. But many believe that if immigration were at 2016 levels in the US, the job market wouldn’t be so tight, and inflation wouldn’t be such an issue.
The whole thing is ironic. A few years back everyone was worried that all jobs were being automated away. Now, jobs sit open due to lack of workforce participation. Hard to see inflation muted without tamping down the job market, unless somehow labor supply suddenly rockets upward.
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In response to this post by Tuckahokie)
Link: https://www.brookings.edu/blog/future-development/2022/07/01/todays-global-economy-is-eerily-similar-to-the-1970s-but-governments-can-still-escape-a-stagflation-episode/
Posted: 09/26/2022 at 09:21AM