Fed Chairman Jerome Powell and Chairman Joe Biden are rolling the dice runaway inflation and slow growth.
Global supply chain disruptions and cost pressure about businesses likely to continue in 2023 but only by phasing out purchases of Treasuries and mortgage-backed securities, the Fed is still adding significant liquidity. The delay to mid-2023 to raise interest rates makes speculative money cheap.
“The Fed will be under enormous pressure to print more money and let inflation solve the federal government’s funding problems.”
whatvariant elta, climate change-related events and Evergrande’s woes have slowed recovery here and in Chinaand injecting more liquidity into the system does not create chip production capacity or alleviate labor shortages. But cheap credit and excessive liquidity help push house price 20% a year, forcing the stock market
and generally creating too much money chasing too few goods.
This creates dangerous asset bubbles and torpedo affordability for young people. Around cities are growing faster, requiring higher wages for growing businesses trying to recruit talent.
Many business leaders feel increased laborand material cost pressure is becoming structure—Not temporary. Building those expectations into the annual business plan creates a self-sustaining wage price spiral.
GDP growth and key inflation depend on labor force and productivity growth. During the 2010s, these numbers grew at a respectable rate, and President Donald Trump’s tax breaks and deregulation program posted 2.5% growth.
There’s not much we can do about the short-term growth of our native-born working-age population, but our immigration policy is in disarray. The border is bleeding with low-skilled asylum seekers who will seek employment in industries where opportunities are narrow. Work arrangements that combine office and work from home and automation are permanently destroying jobs at restaurants, retailers, dry cleaners and the like.
Biden sternly opposes sealing the southern border and redirecting immigration by prioritizing highly skilled workers that will drive growth and productivity, rather than those who are likely to place new burdens on programs welfare.
Waste of capital seems to be a concern in Washington these days. Keep short-term rates near zero and benchmark 10-year Treasuries below 2% spurring record junk bond sales and multiply the number of zombie companies — businesses whose revenue does not include labor and material costs plus interest payments.
When the Fed normalizes interest rates, these companies will not be able to roll back their debt and risk bankruptcy. A 2% increase in mortgage rates could easily burst the housing bubble. This combination could hold the Fed hostage to reverse the phasing out of bond purchases and block interest rate normalization.
Domestic Curtailing Gasoline production will not allow ordinary households to buy electric cars at a faster rate. Building EVs is only possible at a rate where science lowers battery costs and reduces charging times. Beyond fully funding research, the additional federal money won’t be as profitable and would be better spent elsewhere.
Biden wants federal subsidy bias for electric vehicle purchases against union-manufactured vehicles. Unfortunately, GM’s
make offerings cause a fire hazard if bean in the garage, and by Ford
Electric cars are less inspiring than Tesla electric cars
UAW placement merely threatens public safety and wastes capital by shifting resources from more innovative businesses to less competent ones.
Decreasing investment in green technology will lower the cost of wind, solar and batteries more quickly, but the benefits to productivity and overall economic growth will be greater if the market is segregated. optimal capital allocation between green industries and other activities.
Growth slows down
Once the economy fully recovers from the pandemic, raised and Management Both forecast a growth trend of less than 2%. That’s a pretty low step down from Trump’s profile and admission that their policies are slowing workforce growth or productivity.
The large adjustment package will likely be scaled back, but most of it will be completed by the early expiration date for new and continuing programs like the child tax credit and other expanded benefits. Paid with new revenues over 10 years, those will lead to larger federal deficits over the next few years.
The Fed will be subject to the adjustment of tremendous pressure to print more money and let inflation solve the federal government funding problems.
Economists advising Biden recommend the Fed should set an inflation target significantly higher than 2% to better support growth.
The hyperinflation of the 1970s showed the opposite, but that’s how you put lipstick on a pig.
Peter Morici is an economist and professor emeritus of business at the University of Maryland, and a national columnist.
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https://www.marketwatch.com/story/powell-and-biden-are-rolling-the-dice-on-inflation-and-growth-11637278638?rss=1&siteid=rss Opinion: Powell and Biden are rolling the dice on inflation and growth