This seems odd. The people most damaged by inflation are those without assets, the poor and working classes, traditional Democrat constituencies. If interested see Fed Vice-Chair (now director of the National Economic Council) Lael Brainard after the jump.
From Yahoo Finance, March 12:
Jay Powell is staying hyper-focused on a numeric goal that originated 36 years ago in New Zealand — despite pushback from Democrats
The Federal Reserve’s goal is to get the inflation rate at least near 2% before it begins cutting interest rates.
That's a formal target backed by written policy, but it's also the source of growing liberal discontent serving as another form of political pressure on Fed Chair Jerome Powell as he tries to navigate a white-hot election year.
Some on the left want that number to be higher. Some would prefer the Fed add a second target focused on the labor market. And several Democrats used public hearings this past week with Powell to question the target's origins and why it has so much importance inside the central bank.
"It seems to come from Auckland and from the 1980s," a somewhat disbelieving Rep. Brad Sherman said on Wednesday when it was his turn to question Powell.
The liberal stalwart from California was right. The path to 2% began with an off-the-cuff comment in New Zealand in 1988.
The Fed publicly adopted the standard 24 years later, in 2012, in a process that was met with discomfort from the left side of the political spectrum largely because of the lack of a parallel labor market target.
Senator Sherrod Brown, chairman of the Senate Banking Committee, underlined this dynamic on Thursday when he suggested Powell move quickly to cut rates "to prevent workers from losing their jobs" and added that "this town too often seems to forget that maximum employment is part of the Fed's dual mandate."
The Fed doesn’t have a numeric labor target even though its dual mandate requires it to aim for both stable prices and maximum employment.
Its inflation target is key because of how rate cuts are decided. Powell and other Fed officials have made it clear they won’t start lowering the benchmark rate from its 22-year high until they are confident inflation is moving down "sustainably" to 2%.
And Powell strongly signaled last week that the 2% inflation target isn't going anywhere. He mentioned it seven different times within the span of his five-minute-long opening remarks before lawmakers on both Wednesday and Thursday.
He also acknowledged its Kiwi origins in response to Sherman's questioning but added that "2% has become the global standard — it's a pretty durable standard." He reinforced his belief that it wouldn't be a problem for the US to achieve the 2% level in the months ahead.
"People are always talking about this," said Preston Mui, who is with a labor market-focused group called Employ America. Changing the target by moving it even higher to 3% "is probably not something that's politically in the cards for the Fed at all right now."
But talking about the number has nonetheless "caused a lot of headaches for Powell over the last two to three years," Mui added.
How the Fed got here
The path to the Fed's 2% inflation target was a winding one that began with an interview that is now infamous in central banking circles.Don Brash, who was governor of New Zealand’s Reserve Bank, offered an off-the-cuff comment in 1988 that he wanted an inflation rate between 0% and 1%. That set off a policy-making process and led his nation to adopt a formal 2% target soon thereafter.
Other central banks followed and the moves were criticized from some quarters as being too inflation-focused.
Perhaps the most colorful takedown came from Mervyn King, a British economist who served as governor of the Bank of England. He said in 1997 that he worried a hyper-focus on price targets would lead to central bankers becoming "inflation nutters."
The Federal Reserve, under Alan Greenspan at the time, was resistant to a public embrace of the idea but debated it throughout the 1990s and early 2000s.
"If you read FOMC transcripts around inflation targeting, it's a concern," said Federal Reserve historian Sarah Binder of political considerations in a recent interview.
There was resistance to implementing it during a 2008 downturn, with Ben Bernanke in charge. There was concern among Fed governors that "we've got to be worried about pushback from Democrats," Binder said.
But by 2012, with a recession in the rearview mirror and Bernanke in his second term as chair, the Fed pivoted, and a 2% target was publicly adopted.
Bernanke argued in his memoir that a 2% target increases business and consumer confidence and therefore gives the bank more flexibility to address both sides of its dual mandate.
It's an argument that is still used today, with an explainer on the Fed's website saying the 2% target "is most consistent with the Federal Reserve's mandate for maximum employment and price stability."
But many on the left were never fully on board. Bernanke acknowledged in his memoir that a main liberal voice of that era — Rep. Barney Frank of Massachusetts — brought up the lack of parallel labor market target and "wasn't completely comfortable" with the policy even if he went along with it in the end.
It's a critique that has persisted for years.
"I think it should be higher than that," Rep. Maxine Waters said of the 2% target in an interview with Yahoo Finance's Jennifer Schonberger last week, saying an increase would help support working families.
Rakeen Mabud, the chief economist at the left-leaning group Groundwork Collaborative, put a finer point on it, saying the target "codifies the fact that inflation is just more important to the Fed than unemployment is."....
....MUCH MORE
April 2022
Class War: Fed Governor Lael Brainard On "Variation in the Inflation Experiences of Households"
As Commended To Our Attention By The World Economic Forum: Pods For Poor Plebs To Live In
One of the things that stands out about price increases is their disparate impact on various income levels and wealth classes. Some of our comments on this brutal reality:
December 2011
...One way to foment social unrest and even violence is to promote policy's that contribute to the rising costs of necessities, food, fuel etc.
I'm looking at you Professor Krugman.
It doesn't matter to people who are getting squeezed that the iPhone 4's price is dropping or that the BLS's hedonics say they're getting better quality in new cars when the price of gas refuses to go below $3.00.
June 2022
There seems to be something akin to an actual plan to charge the plebs everything they earn to cover food, shelter, and basic necessities and further, to drive them into debt servitude to the tune of 5% - 10% of annual income per year.
September 2022
The laptop class and above are impervious to price hikes for food, it just doesn't register.
Whereas for the working class this winter there will be no spending beyond food, fuel and housing.
With maybe a shared subscription to Better Huts and Gardens for some survival tips.*
And not to put too fine a point on it:
Understanding The Practical And Political Effects Of Inflation
with these back-links:
"The Cantillon Effect: Because of Inflation, We’re Financing the Financiers"
....As noted earlier today in the outro from "The Cantillon Effect and Populism":
There are currently no pure-play pitchfork manufacturers and it has been a long-cherished dream (since 2008!) to fill the void and/or live up to my junior high school personal file description: the instigator was....October 10, 2023
"China Considers Stimulus, Higher Deficit Spending To Counter Property Bust"
I smell
OscarCantillon.In which case the thing to do is determine who will get the money first and be that person. If it is not possible for you to quickly become a member of the Chinese nomenklatura determine how to make a portfolio bet on those who are already members of the privileged class. As noted a few years ago:
One of the rules of politics is "if your country goes communist you want to be as far up the apparatchik totem pole as you can get."
Preferably a commissar or above, putting you and yours closer to the commissary.
In a socialist paradise all pigs are equal but Hugo Chavez's daughter is a billionaire.
(actually $4.2 billion)
Ahead of next week's CPI report, this concept of how differently various groups of humans experienced the three years of higher-than-targeted increases in the general price level is exactly the point of the introduction to August 5's "Unless You Deeply Understand How Inflation Hits Different Groups, You Don't Understand Inflation":
When I say 'deeply' I mean having the empathy and imagination to actually 'feel' the emotions that result from having to comparison-shop food prices and then food prices vs other necessities.
It all comes down to financial assets and whether a person benefits from rising asset prices.
Regarding the example below, Denny's, I've never been to a Denny's. Nobody I know goes to Denny's. But there are millions of people who do; when they need something to eat and don't have the time or skill or implements to cook for themselves. And for those people the S&P 500 approaching the old highs literally has no meaning....
March 2021: If interested see also any number of posts on Mr. Cantillon's revelation*:
Cantillon Effect: Why Wall Street Loves Fiscal Stimulus (and you should too)
That is, you should if you have financial assets.
If not, you're doomed to a life of poverty at whatever level the powers-that-be think they can get away with....
*****
*...The key episode in Cantillon's life was his involvement with John Law and his monetary schemes. Cantillon was opposed to the inflationist theories of Law, but he understood how the schemes worked and what their fatal flaws were. Thus, he was able to create a large fortune from the Mississippi System and South Sea Bubble. In the aftermath of these financial debacles, Cantillon wrote his famous Essai, breaking out of the muddleheaded mercantilist thinking of his day to make a pathbreaking contribution to our knowledge of method, theory, and policy. Shortly after writing the Essai, Cantillon was murdered under mysterious conditions, and his Essai remained unpublished for more than 20 years....
Tips For Doing Business In Totalitarian Countries
As this will be an ongoing series I'll keep this introduction brief..
Your overarching goal must be to achieve invisibility. Be the grey man/woman. As Chairman Mao said:
"The guerrilla must move amongst the people as a fish swims in the sea"
One
of the easiest things to do, if you are a citizen, is join the party.
You don't have to be ostentatious about it, just join. And as we learned
studying the Nazis, an earlier number was better than a later one.
As noted in the introduction to "“A Communist Doesn’t Whine — He Shows His Teeth” Communists In Weimar Germany":
One of the rules of politics is "if your country goes communist you want to be as far up the apparatchik totem pole as you can get."
Preferably a commissar or above, putting you and yours closer to the commissary.
In a socialist paradise all pigs are equal but Hugo Chavez's daughter is a billionaire.
(actually $4.2 billion)
As to where you might find opportunity, if your country goes full Weimar with the money printing, pull your beach chair up to a spot beside the fire hose and let the splashes of the sweet, sweet trillions refresh you.
Also smuggling is always a good choice, command-and-control economies tend to create huge distortions in supply/demand dynamics.
Much more to come including case studies from the former East Bloc and the pros and cons of joining the nomenklatura.
