I think the Bullard quoted is the president of the St. Louis Fed bank. I have to confess I really don’t understand how the fed works.
How big a role does the Fed Chairman Powell get in deciding the FOMC policy? How does it compare to other members like Bullard?
Here is an article but it does not explain my questions although it is pretty long and I might have missed it.
*U.S. AVERAGE RETAIL GASOLINE PRICE SURGES TO HIGHEST SINCE 2014
“The Biden Administration has consistently threatened oil and gas producers with new taxes, regulation, and reporting requirements that raise costs for domestic producers." The president has also called on the Federal Trade Commission to probe whether oil and gas companies are engaging in criminal conduct by profiting from artificially high prices at the pump
Good interview on inflation and historical perspectives. The Fed is behind the curve here.
SUMMERS: It’s clear that inflation is the dominant economic problem as seen by the American people. It’s clear that inflation is significantly contributing to distrust in the institutions and to pessimism about the future. That is a terribly, terribly important thing at a time when our democratic institutions are being challenged. I think that if inflation had better been controlled, there’s a real possibility that the election of Richard Nixon in 1968 and Ronald Reagan in 1980 would not have happened. So, for those like me who are of a progressive mindset, the issues around inflation are hugely important. One can make — and we do in economics classes — an argument that inflation is like a change in units. If wages go up by 10 percent and prices go up by 10 percent, then people are in some sense in the same place in terms of purchasing power. But people don’t see it that way. They give themselves credit for the 10 percent increase in wages, and they blame the political process for the 10 percent increase in prices.
True to some extent that human nature does not help the sentiment.
But it’s not just inflation people are upset about. It’s the fact that their paychecks increase by much less than real inflation. How many will get a 7% raise this year? In years when we had 2-3% inflation, wages kinda kept up with that so you did not hear much about prices going slightly up.
The issue is that for most, it’s not simply a change of units but an actual decrease in purchasing power. You still get your 3% raise but prices are up 7+% meaning your purchasing power went down 4% in a matter of months. That’s a lot harder to swallow than just a change of units.
Agreed. And that loss of purchasing power is especially tough for less fortunate people who did not have all that much to start with.
Since most Americans live paycheck to paycheck and actually carry some debt, as long as the pay raise remains in line with the inflation, there is limited impact on purchasing power. Their debt is paid with cheaper dollars in future
Savers who leave money in the bank accounts appear to lose the most due to inflation.
this is not true at all. The wage increases are taxable by both the feds and the state for the half of the country that pays income tax.
That doesn’t make mathematical sense (commutativity property of the multiplication operator over integers) when talking about a % change.
Unless you happen to change marginal rate upon increase in wages (shouldn’t happen if tables follow inflation somewhat and even then it’d be pretty close), if your pre-tax salary increases by 10%, so does your post-tax salary. So you should still have 10% more money available than before to tackle expenses that have grown by 10%.
But if you are already running a deficit, that deficit will also increase by 10%. Putting you in an even deeper hole, quicker.
Plus, a huge problem is that while workers may be able to score wage increases that match inflation, that often requires changing jobs. And lots of people are far more inclined to complain about their less-than-inflation raise, than they are to go out and find a higher salary somewhere else.
that’s not the way I see it. If my expenses increased by $10 due to inflation and my wages increase by $10 also I have to pay taxes on the $10 so all I get is $7. But my expenses are still $10 so I am $3 behind. I would have to get an increase of $14 in my wages so my take home pay increases by $10.
This is a huge math fail on your part.
The argument was about 10%, not $10. If your expenses increased by $10 and your wages increased by $10, then you either (1) don’t pay taxes in the first place or (2) your wages did not keep up with inflation:
Simply put: you make $100 and your take-home is $80, and you spend $80. A 10% increase to everything puts your income at $110. And your take-home $88. And you are spending $88.
Now, if you were making $100 ($80 take-home) and spending $100, for a deficit of $20, a 10% across the board increase would leave you with a new deficit of $22. So you are now worse off, and would need to make 12% more just to cover the 10% increase in spending, and still wouldnt make a dent in your original $20 deficit. It’s the big reason why it is relatively easy to keep up, but once you fall behind, even just a little, it’s really hard to catch back up again.
All true, but it’s not Jerome Powell’s fault anyone fell behind in the first place.
I’m just saying that Onenote’s math may have been flawed, but his conclusion still had some merit. For a lot of people, a 10% increase in wages will in fact not keep up with a 10% increase in expenses. There’s no “fault” being assigned, it’s just a basic fact of the situation.
Why would it be harder? You’re still running the same 20% budget deficit. Sure you are $22 in the red compared to $20 before but you’re also paid $110 instead of $100. The purchasing power of $110 (and the $22 deficit) is still the same in constant dollars than it was prior to 10% increase in wages and expenses. So I just don’t follow the math of this argument.
Now the perception of being down more is basically what Summers was talking about. People take for granted that they deserved the 10% wage increase from their hard work but complain about everything costing 10% more, not realizing the increased labor costs is entirely part of that inflation.
Percentages are what they are, but at some point you need to look at the absolute dollars involved. And saving $22/cutting $22 out of your budget is inherently harder than saving/cutting $20.
In the case of the current inflation we are experiencing, we are seeing record inflation BEFORE we see matching increased labor costs. It things other than labor that are driving this inflation. Most workers have not yet seen their wages keep up with inflation.
I don’t see anything “inherently harder” in this. If everything went up 10%, then saving/cutting $22 after the increase is exactly as hard as cutting $20 was before the increase. If you had to stop buying a $20 pack of cigs then, you have to stop buying the same pack of cigs now, which now costs $22.
CPI coming in hot, 0.9% for Jan alone. Market not liking it.
hearing Energy up 27%, Used cars up 40%
Bad. Very bad.
But good for I bond owners. 