Is Biden doing enough on inflation ?
Should he do more to counter inflation ?
Joe is limited in what he can do as far as I am concerned. We got to this point because of a bad combination of supply shortages and insatiable consumer demand, the latter of which I feel was created primarily through low interest rates and secondarily from too much fiscal stimulus. Joe doesn't control rates obviously, and what's done is done regarding stimulus, so what's left to look at is supply chain disruptions/shortages. He took steps where he could - for example, releasing some oil from the strategic reserve. Did this actually translate to the lower prices we saw or was it something else, like reduced consumer demand for fuel? Difficult to say at this point, but at least it was something that could have had an impact (as opposed to other measures/proposals that both sides like to take purely for political points). Most of the other steps needed to improve supply constraints are much longer term prospects which make measuring his action/inaction more difficult.
On the flip side, he essentially unilaterally decided to cancel a sizeable portion of student loan debt. The majority of economists seem to agree that this will not have a major impact on inflation, but it will have an impact nevertheless, and it should be considered as part of a balanced evaluation.
Has he and the Fed done too much and should start looking to take action to prevent deflation?
Or do you just want to wait and see what happens and that way - no matter what - you can point the finger regardless?
In my estimation the Fed has not done too much, and they need to continue to do more, in terms of rate increases. Not much more, but more. By the technical definition, if prices drop back to pre-pandemic levels, or just above pre-pandemic levels, we will have experienced deflation, however I look at it as a correction, not a trend. I would view inflation as an average over the 2-3 year period vs the year over year and not be worried. Some goods/services are really sticky and are more or less permanent, like rents and wages (to some degree), making this outlook more difficult to realize. But just as the stock market has ups and downs, it also has a long-term average trend.
In short, I am not opposed to deflation at this point in time. Prolonged inflation is more of a threat in my opinion.
The Fed (and to some degree, the Oval Office) really misread the situation when they labeled rising inflation as transitory. I'm happy they realized it and are taking steps to curb it. Their late action will create more pain than what could have been, but there was always going to be some pain no matter what. Frankly I'd rather have pain than a deep recession.
We as a country live and die by credit. At the consumer level it's all about the monthly payment. Housing shot up because consumers could afford to offer larger bids due to historically low rates.
The stock market shot up during the pandemic because of the easy, cheap money. Fundamentals were disconnected from stock prices, speculation was up. The markets are down, but still up compared to pre-pandemic. Like I said before, the long-term trend is about right despite the (unwarranted) peak and subsequent valley (correction).
On the topic of the market and rates - isn't it a little concerning that
the market is actually rooting for unemployment to go up so that the Fed will possibly lower rates? It's almost like an addict trying to get their fix. I don't want a world where the "long" side of the market roots against the success of our economy - that is so backwards.
