Secular Stagnation in Occlusion, Yet Global Savings Glut Still in the Foreground: With Fed policy frozen for at least the summer, the monetary muddle continues: Today’s discount rates reveal the...
Oh goody! The return of one of my favorite mistaken notions, “saving glut,” "Investment dearth" is more like it.
The developing world needs bazillions of investment even to “get to Denmark” but they don’t have the property rights regimes to attract the domestic and foreign savings. Ditto the need for levees and seawalls and irrigation systems and new crop varieties and forest management to adapt the level of CO2 alreddy in the atmosphere.
And even the lowest cost measures to reach CO2 net zero by 20nn (a tax on net emissions) will require huge investments.
> Thomas L. Hutcheson: Oh goody! The return of one of my favorite mistaken notions, “saving glut,” "Investment dearth" is more like it. The developing world needs bazillions of investment even to “get to Denmark” but they don’t have the property rights regimes to attract the domestic and foreign savings. Ditto the need for levees and seawalls and irrigation systems and new crop varieties and forest management to adapt the level of CO2 alreddy in the atmosphere. And even the lowest cost measures to reach CO2 net zero by 20nn (a tax on net emissions) will require huge investments...
"Starting back in the Clinton administration, the then-Alan Greenspan Fed settled on what came to be regarded as a “normal” configuration of the macroeconomy: a core inflation rate of 2.5%/year on a CPI-basis (and 2.0%/year on a PCE-basis); a short-term safe real interest rate of 2.5%/year; and a term-structure duration-risk slope of 1.25%-points/year going from the 3-month to the 10-year Treasury"
There must be some combination of size and frequency of ordinary (Brownian movement) economic shocks, price stickiness (across multiple sectors, not just wages), federal deficits, tax and regulatory policies bearing on the choice between saving and investment that make this configuration growth maximizing.
Only the first two of those are plausibly slow moving enough to justify an "A" of 2% PCE in a F_A_IT regime. With tax and regulatory structures and deficits varying, why should anyone have any expectation of a "normal" level of short and long tern interest rates that the Fed might need to engineer to hold to a 2% forward looking average while flexibly adjusting inflation to deal with extraordinary shocks and policy to maximize growth?
I want to get you, John Cochrane and Scott Sumner in a conclave (doors locked no food or water) to elect a new Fed meta policy rule. :) Blanchard is Camerlengo.
Referring to the split in the dot plot, “everyone would agree that they’re all going to be data dependent”. Powell emphasized that no one on the committee is wedded to their projections. “No one holds these rate paths with a great deal of conviction,” he said.
Then why publish them? Isn't there even a tiny chance that the publication will cause some governor to vindicate their unconditional prognostication? Did that not lie behind the delay in cutting the EFFR in 2024?
The split at t he Fed ought to be between those that think we a lower EFFR to get more inflation to facilitate adjustment to tariffs and those who think the reason to cut rates is to prevent deflation arising from uncertainty. And the way to act is to act, not prognosticate its own future behavior.
I feel I already give away too much of SGH Macro's intellectual property for free here, and am scared they will close me down if I give away any more...
"which means that tariffs are absorbed in the economy somewhere other than in consumer prices, or that service sector disinflation compensates for tariffs."
If I'm reading this correctly, the second part of the quoted passage means, "Yes, prices for things directly and near-directly affected by tariffs will go up, but prices in the service sector will stagnate or fall, so the overall inflation rate will stay low."
If wages in the service sector are influenced by sales prices in the service sector, that means that service-sector wages will be constrained by stagnating service-sector prices, at the very moment that goods are getting more expensive.
With the large majority of the U.S. labor force in the service sector, this is a recipe for most people to experience diminished purchasing power, even as overall inflation looks fine.
I cannot find a documented answer to this, but I can say when I personally began to notice this usage. Inflation swaps (and related derivative contracts) are indexed to a "reference" - future published values of inflation, which of course are unknown until publication. The dignified term for determining the realization of a reference value is "fixing" but traders casually refer to these values as "prints". This terminology was in use in other derivatives markets (interest rate, FX, equity) earlier; I think by the 90's. Some of these references were just published numbers like LIBOR, but others were prices recorded from trades; typically at close of day. And of course, referring to traded equity prices as "prints" goes back to the days of ticker tape.
Oh goody! The return of one of my favorite mistaken notions, “saving glut,” "Investment dearth" is more like it.
The developing world needs bazillions of investment even to “get to Denmark” but they don’t have the property rights regimes to attract the domestic and foreign savings. Ditto the need for levees and seawalls and irrigation systems and new crop varieties and forest management to adapt the level of CO2 alreddy in the atmosphere.
And even the lowest cost measures to reach CO2 net zero by 20nn (a tax on net emissions) will require huge investments.
Touché... Investment dearth:
> Thomas L. Hutcheson: Oh goody! The return of one of my favorite mistaken notions, “saving glut,” "Investment dearth" is more like it. The developing world needs bazillions of investment even to “get to Denmark” but they don’t have the property rights regimes to attract the domestic and foreign savings. Ditto the need for levees and seawalls and irrigation systems and new crop varieties and forest management to adapt the level of CO2 alreddy in the atmosphere. And even the lowest cost measures to reach CO2 net zero by 20nn (a tax on net emissions) will require huge investments...
"Starting back in the Clinton administration, the then-Alan Greenspan Fed settled on what came to be regarded as a “normal” configuration of the macroeconomy: a core inflation rate of 2.5%/year on a CPI-basis (and 2.0%/year on a PCE-basis); a short-term safe real interest rate of 2.5%/year; and a term-structure duration-risk slope of 1.25%-points/year going from the 3-month to the 10-year Treasury"
There must be some combination of size and frequency of ordinary (Brownian movement) economic shocks, price stickiness (across multiple sectors, not just wages), federal deficits, tax and regulatory policies bearing on the choice between saving and investment that make this configuration growth maximizing.
Only the first two of those are plausibly slow moving enough to justify an "A" of 2% PCE in a F_A_IT regime. With tax and regulatory structures and deficits varying, why should anyone have any expectation of a "normal" level of short and long tern interest rates that the Fed might need to engineer to hold to a 2% forward looking average while flexibly adjusting inflation to deal with extraordinary shocks and policy to maximize growth?
Thinking... - B.
I want to get you, John Cochrane and Scott Sumner in a conclave (doors locked no food or water) to elect a new Fed meta policy rule. :) Blanchard is Camerlengo.
Referring to the split in the dot plot, “everyone would agree that they’re all going to be data dependent”. Powell emphasized that no one on the committee is wedded to their projections. “No one holds these rate paths with a great deal of conviction,” he said.
Then why publish them? Isn't there even a tiny chance that the publication will cause some governor to vindicate their unconditional prognostication? Did that not lie behind the delay in cutting the EFFR in 2024?
The split at t he Fed ought to be between those that think we a lower EFFR to get more inflation to facilitate adjustment to tariffs and those who think the reason to cut rates is to prevent deflation arising from uncertainty. And the way to act is to act, not prognosticate its own future behavior.
More Tim Duy
I feel I already give away too much of SGH Macro's intellectual property for free here, and am scared they will close me down if I give away any more...
I understand. At the same time, you link to him every time, so maybe you're generating business for them.
Thanks for the reply. Have a great rest of your weekend
We should have a marketable nominal Trillionth and suite of TIPS to make the market put its money more explicitly on the line.
From the first Tim Duy passage:
"which means that tariffs are absorbed in the economy somewhere other than in consumer prices, or that service sector disinflation compensates for tariffs."
If I'm reading this correctly, the second part of the quoted passage means, "Yes, prices for things directly and near-directly affected by tariffs will go up, but prices in the service sector will stagnate or fall, so the overall inflation rate will stay low."
If wages in the service sector are influenced by sales prices in the service sector, that means that service-sector wages will be constrained by stagnating service-sector prices, at the very moment that goods are getting more expensive.
With the large majority of the U.S. labor force in the service sector, this is a recipe for most people to experience diminished purchasing power, even as overall inflation looks fine.
"when did people start using that word that way"
I cannot find a documented answer to this, but I can say when I personally began to notice this usage. Inflation swaps (and related derivative contracts) are indexed to a "reference" - future published values of inflation, which of course are unknown until publication. The dignified term for determining the realization of a reference value is "fixing" but traders casually refer to these values as "prints". This terminology was in use in other derivatives markets (interest rate, FX, equity) earlier; I think by the 90's. Some of these references were just published numbers like LIBOR, but others were prices recorded from trades; typically at close of day. And of course, referring to traded equity prices as "prints" goes back to the days of ticker tape.
Thx v much... -B/