What we’re reading (4/10)
“Is Larry Summers Really Right About Inflation And Biden?” (The New Yorker). “In defending his argument that excessive demand fuelled by Biden’s relief plan was the primary cause of the inflation spike, Summers pointed to the fact that the nominal G.D.P.—output not adjusted for price changes, which economists regard as a measure of demand—expanded by more than ten per cent in 2021. ‘If you have nominal G.D.P. growth at double-digit rates in an economy with any type of limitation on capacity, you are going to have excessive inflation,’ he said”
“Is The Fed Fisherian?” (The Grumpy Economist). “The Taylor rule says the interest rate should be 2% (inflation target), plus 1.5 times how much inflation exceeds 2%, plus the long run real rate. That means an interest rate of at least 2+1.5x(8-2) = 11%. Yet the Fed sits, and contemplates at most a percent or two over the summer. This reaction is unusually slow by historical precedent, not just by standard theory and received wisdom…[t]he Fed's current inaction is even more curious if we look at a longer history. In each spurt of inflation in the 1970s, the Fed did, promptly, raise interest rates, about one for one with inflation.”
“Recession Risk Is Rising, Economists Say” (Wall Street Journal). “Economists slashed their forecast for growth this year. On average they see inflation-adjusted gross domestic product rising 2.6% in the fourth quarter of 2022 from a year earlier, down a full percentage point from the average forecast six months ago, though still higher than the 2.2% average annual growth rate in the decade before the pandemic.”
“The S&P 500 Will Plunge 11% By The End Of 2022 As ‘Inflation Shock’ Sparks A Recession, Bank Of America Says” (Insider). “‘Inflation causes recessions,’ BofA stated bluntly, and right now, inflation is ‘out of control,’ according to the note…nearly all prior recessions have been preceded by inflation surges, including in the late 1960's, early 1970's, and in 2008. ‘Last dominos to drop in terms of recession expectations is higher yields and weaker dollar,’ BofA explained.”
“Bank Earnings, CPI Inflation, Retail Sales: What To Know This Holiday-Shortened Week” (Yahoo!Finance). “Despite a four-day trading session, with Wall Street closed for Good Friday, a pivotal week is underway for investors as mega-banks including JPMorgan Chase, Goldman Sachs, and Citigroup get the ball rolling on Q1 earnings season. On the economic data front, markets will get the latest gauge of U.S. inflation with Tuesday’s closely-watched Consumer Price Index (CPI) and the Producer Price Index (PPI) set for publication Wednesday.”
