For those who care, today is 'Federal Reserve Day.'
Not everyone is celebrating. There is debate in the market about the potential interest rate cut decision early Thursday morning; does the data really support what basically everyone thinks is an impending rate cut? But from a broader perspective, how successful has the Federal Reserve been in combating inflation?
A research report states that the decline in the inflation rate is mainly due to factors outside the Federal Reserve's rate hike activities. A study based on the Federal Reserve's own economic models indicates that rate hikes suppressed 40% of the inflation surge; while another approach based on models from former Federal Reserve Chairman Ben Bernanke and former International Monetary Fund Chief Economist Olivier Blanchard yielded results closer to 20%.
So — even 20% is a form of help, isn't it? The issue is not just the common arrogance of Federal Reserve officials, but that it supports a 'broken macroeconomic model.' In this model, the 'inflation expectations channel' plays a core role in wage-price dynamics.
A paper highlighted by Panmure Gorham Liberum strategist Joachim Klement indicates that this celebration also distracts from concerns about the Federal Reserve's failure to address, or even recognize, key factors that continue to drive inflation up, especially in the services sector.
So, why has inflation decreased without a recession occurring? Part of the reason is the reduction in global supply-side constraints and the appreciation of the dollar, but a major reason is that the real wages of American workers have been hit. They said, 'Unlike the 1970s, when American workers (and unions) were still able to protect their real wages from rising inflation, this time it is the decline in real wages that has absorbed the impact of price level shocks.' This can be seen from the lag of the employment cost index behind consumer prices and the cumulative decline in median real weekly wages.
The author states that the rich, super-rich, and the wealth effect are reasons for sustaining consumption. This has also exacerbated inflation in the services sector. They said, 'A particularly vivid example is the influx of labor into high-end restaurants while nurseries, nursing homes, and other low-wage industries are struggling, but this is far from an isolated case.'
They are not optimistic about the inflation outlook — their concerns include weak antitrust enforcement, climate change undermining the stability of the insurance and parts of the financial industry, geopolitical tensions, and the influence of money politics.
They ultimately turned their criticism towards the Federal Reserve. They said, 'The revelry in Jackson Hole and elsewhere is not real; central bank leaders have promised to act 'based on data,' as their preferred models are far from reality.'
The article is reposted from: Jin Shi Data