Inflation, You Say?

Inflation and employment remain well below the Federal Reserve’s goals, meaning easy monetary policy is likely to stay in place, central bank Chairman Jerome Powell said Tuesday.

Despite a sharp rise this year in bond yields that has accompanied heightened concern over inflation, Powell said price pressures remain mostly muted and the economic outlook is still “highly uncertain.”

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” the Fed chief said in prepared remarks for the Senate Banking Committee . . .

However, Powell’s statement did not mention the market’s most pressing concern: the jump in 2021 of longer-duration government bond yields to levels not seen since before the Covid-19 pandemic. The 30-year bond, for instance, is up more than half a percentage point and the benchmark 10-year yield has risen 44 basis points . . .

The Fed last year revised its approach to inflation. In the past, it would levy preventive rate hikes when it saw unemployment drop, thinking that a stronger job market would push up prices.

Now, it has adopted an approach in which it will allow inflation to average above 2% for a period of time before moving to tighten policy.

“This change means that we will not tighten monetary policy solely in response to a strong labor market,” Powell said . . .

“Mr. Powell presumably wants to try to persuade markets that a strengthening economy does not necessarily mean that rates have to rise. Good luck with that when the post-Covid surge in activity [becomes] clear,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics . . .

Commodities rose to their highest in almost eight years amid booming investor appetite for everything from oil to corn.

Hedge funds have piled into what’s become the biggest bullish wager on the asset class in at least a decade, a collective bet that government stimulus plus near-zero interest rates will fuel demand, generate inflation and further weaken the U.S. dollar as the economy rebounds from the pandemic.

The Bloomberg Commodity Spot Index, which tracks price movements for 23 raw materials, rose 1.6% on Monday to its highest since March 2013. The gauge has already gained more than 60% since reaching a four-year low in March 2020.

Advances on the day were helped by copper, which rose above $9,000 a metric ton for the first time in nine years, before extending gains further on Tuesday. Oil also jumped to the highest in more than a year on speculation that global supplies are rapidly tightening, while coffee and sugar rose . . .

I have no objection in principle to huge fiscal spending. Indeed, in January 2009, I argued that the US should run a fiscal deficit of 10 per cent of gross domestic product until the damaged balance sheets of the private sector were healed. Shortly thereafter, I argued that we had to learn from Japan if we were to understand the dangers then confronting western economies.

I agree with the general consensus of progressive economists that it would have been much better if the Obama administration had been able to legislate a much larger fiscal stimulus in early 2009, in response to the Great Recession. Yet a comparison of the 2009 stimulus and what is now being proposed is instructive . . .

The Obama stimulus was about half as large as the output shortfall, the proposed Biden stimulus is three times as large as the projected shortfall. Relative to the size of the gap being addressed, it is six times as large.

Unlike a financial crisis, Covid-19 will not necessarily create an overhang of bad private debt likely to suppress demand indefinitely. Instead, the balance sheets of people who have earned well and spent little have actually improved. Again unlike a war, the pandemic does not destroy physical capital. There is a good chance therefore that economies will recover really strongly, once fear of the disease has waned. If so, the dominant part of the planned fiscal policy response should aim not so much at short-term relief as at “building back better”, by promoting a sustained increase in public and private investment.

Unemployment is falling, rather than skyrocketing as it was in 2009, and the economy is likely before too long to receive a major boost as covid-19 comes under control. Second, monetary conditions are far looser today than in 2009 given extraordinary Federal Reserve policies, the booming stock and corporate bond markets, and the weakness of the dollar. Third, there is likely to be further strengthening of demand as consumers spend down the approximately $1.5 trillion they accumulated last year as the pandemic curtailed their ability to spend and as promised further fiscal measures are undertaken.

While there are enormous uncertainties, there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability. This will be manageable if monetary and fiscal policy can be rapidly adjusted to address the problem. But given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply. Stimulus measures of the magnitude contemplated are steps into the unknown.

Some analysts seem to view a big upsurge in inflation as inconceivable, because it has not happened for a long time. This is a bad argument. Many once thought a global financial crisis was inconceivable because it had not happened for a long time. In the 1960s many thought the inflationary upsurge of the 1970s similarly inconceivable.

Many seem to believe nowadays that lower unemployment will not raise inflation. But at some point excess demand is sure to raise prices and wages. At that time, inflation expectations will start shifting permanently upward. The 1970s and 1980s taught us that bringing them down again is very costly, not just economically, but to the credibility of government.

Tesla’s stock performance and the amount of online attention the electric car maker receives on social media platforms such as Reddit are closely tied together, a Barclays study found.

“On the autos team, we have painfully learned that social media memes can matter more for TSLA share performance than actual financial metrics, fundamentals or (dare we say) valuation,” the firm said Tuesday in a note to clients. “There is a positive correlation between the number of WSB [WallStreetBets] submissions exclusively citing TSLA, and the performance of the stock.”

Real-estate veterans and hedge-fund executives believe a seismic shift is under way, one that is moving vast amounts of Wall Street wealth from New York to South Florida. For the past several years, Wall Street has been colonizing the Sunshine State, attracted to more favorable tax policies and sunnier climes. And the momentum is only accelerating amid the pandemic.

David S. Goodboy, founder of the Palm Beach Hedge Fund Association, a networking organization for finance professionals in South Florida, said he saw his base of paying members almost triple in the past year. When he scheduled an in-person networking event in January at the West Palm Beach home of one of the organization’s wealthy members in January, he said he was shocked to get 300 RSVPs . . .

[Last week] marked the end of the Perseverance rover’s 300m mile journey to Mars and the start of a 687-day mission to better understand whether the planet would make for a nice place to live.

Costs for development and operation of the rover will likely total $2.4B…

… But the benefits on Earth are likely worth far more

Since the 1960s, NASA’s Mars programs have led to countless innovations, including materials for heart surgeries, methane-leak detectors, and — importantly — carbonating beer.

With Perseverance, it’s no different:

The Dictatorship of Woke Capital provides the best account so far of how finance capital ended up on the woke side of the culture wars. The book’s great strength is tracing the lineages of woke back to their sources. Soukup identifies two principal streams. The first, an all-American affair associated with progressives such as Richard Ely, Woodrow Wilson, and John Dewey, gave rise to the administrative state and the creation of a class of professional administrators unaccountable to voters and “trained in the ‘science’ of administration to manage society more rationally and carefully than the masses would, if left to their own devices.”

The second has its origins in Europe, with an assortment of Marxists and post-Marxists such as Antonio Gramsci, György Lukacs, and the Frankfurt School. It then proceeded, in the words of the German 1968-er Rudi Dutschke, on “the long march through the institutions,” the New Left successfully colonizing virtually the entire American system of higher education.

If anything, Soukup underplays the impact of Herbert Marcuse and the New Left. They had repudiated vulgar Marxism because the American working class refused to play the revolutionary role that Marx had assigned it, opening the way for the New Left’s rejection of industrialization and what a leading critic of the Frankfurt School called an “aesthetic repugnance for industrial society.” As willing customers of the “merchants of kitsch,” the American working class kept the system of oppression in business. The New Left transformed the American working class from oppressed into oppressors. The culture wars are in reality a class war waged against the working class and all those whose livelihoods depend on their work – in manufacturing, transportation, and farming and, most of all, in the energy sector . . .