No. of Recommendations: 1
Disclosure:
As an early retiree -- I frankly love the 5% on cash. My goal was a nominal 6% on stocks.......so if I can get 5% but without the risk I can live with that. But if rates go down - then hopefully it means some of my equity values, or even rental home values go up. Point being - I don't have a big axe to grind either way.
I keep hearing up to today - the Fed is serious about 2%. I also keep hearing that "the market" feels this latest increase might be it.
I was wondering what Macro's think: Is 2% possible without a black swan? Reasons I continue to believe that 3% will be the new normal and 2 will be elusive....
*While hiring is not as hot as before - the labor market is still tight. There's a paralysis combined with penchant for political correctness - hence no immigration fix is possible either. A.I will take many jobs----but that isn't right around the corner.
*UPS just got a $7.50 an hour raise to be spread over 5 years. The Railers recently got a few bucks. The United Auto Workers - guaranteed will get decent raises. While in the periphery QSR restaurants and Big Box retailers are facing pockets of unionization, or threat of it. Point being - not a recipe for pay cuts. Oh, the airline pilots got a nice raise too and again - hasn't made it into the economy yet.
These are rather large employers but more importantly, those higher wages will either be absorbed by companies and shareholders, OR passed on to the consumer and I think the latter is how it usually goes. Transporting stuff. Cars. Travel. These expenses hit all industries in one way or the other.
Point being..... I don't see this as DISinflationary to say the least.
This is why I feel that rates will go up more than market is thinking, OR 2% inflation isn't in the cards barring black swans.
Any opinions?
No. of Recommendations: 0
There are a couple of things that impact the ability of the Fed to reduce inflation to 2%.
On the negative side is the fiscal policy of the political branches of our economy: the government keeps spending money like there's no tomorrow. It's tough to take money out of the economy, which is what the Fed is trying to do, when the government keeps injecting money into the economy with such high spending. It's like the modern-day "Keynesians" haven't read Keynes: a) government-originated spending stimulus isn't needed anymore, and b) the spending stimulus creates government debt that Keynes said needed to be paid back promptly, not kept or grown in perpetuity.
On the inflation reduction side is the reinstated requirement that (most) student debt must be repaid by those erstwhile students. That's a large chunk of money that must come out of the economy--reduced spending--in order to make the debt repayments. Of course much of that repaid debt goes back into the economy as other lending, but new/other borrowing is reduced or delayed in the present inflationary environment. The relative impact of those two competing forces is yet to be seen, but even if there's a net increase in borrowing from a net increase in loanable funds from those student debt repayments, that net increase occurs after some lags.
Eric Hines
