Thread by @kmabadir

The fastest-growing developed economy in the West, the US, has just released #growth figures for Q3: 2% annualized (down from Q2 recovery of 6.7%).
[Reminder: growth<0 is #recession, low growth is #stagnation.]

It also released the corresponding #inflation of 5.7%.

#stagflation

Everything is temporary, depending on chosen timescale!
cnbc.com/2021/11/03/fed…
[#Fed] statement kept the word “transitory” to describe price increases that are running at a 30-year high, though it qualified the term somewhat by saying pressures are “expected to” be temporary.

Today’s US data for Q3:
Unit labour costs (QoQ) is +8.3% (vs 1.1% in Q2).

I'm reading these odd classifications of individuals into 2 camps, "transitory inflation" vs other, as if inflationary dynamics were predetermined regardless ("exogenous" in technical jargon). The course of #inflation depends on other variables in the economy, incl policy path.

#Fed tapering #QE won’t lower #inflation: it’s just the mirror-image of when Fed introduced QE which didn’t increase inflation.

Raising #InterestRate is what it needs to do now. Easing borrowing should NEVER have been used to tackle pandemic's econ effect

Travelling the same road in the opposite direction.
#QE on #inflation

Today's US #inflation hitting 7%,the article quoted in this thread (written in summer) is worth 2nd look.

Flicks version:
ucr.zoom.us/rec/play/-QLGk…
Gives background/context for such predictions;same model I’ve used to forecast 2008 crisis 6 months ahead.

Get some popcorn & watch!

minute 49 of that video, on the probable timing of the #StockMarket bubble starting to burst (#stockmarketcrash):

"mid January [or] February"

(Graph for correction was earlier in the lecture and in )

Officially,#Fed has dual mandate: low #inflation,high #employment.

But it's become clear,since <2016,that propping up #SP500 #StockMarket has too often displaced mandate & created a bubble
Will it happen again w/ lower rates instead of fighting inflation?

#FT article by @RanaForoohar echoing concerns that I've been airing for some years now:
"The Lords of Easy Money — where the Fed went wrong"
ft.com/content/4133d4…

BTW, no reason for Fed to wait for March meeting to do sth about the impending crisis. Waiting will make it worse.

Not in the mood to be writing about econ, with the ongoing terrible news from this war, but I'll write my reaction to the week's US rate rise..

The Fed's timid (&late) reaction is 2little-2late for inflation. It should've been 0.5% rise, followed by possibly smaller increments totalling 1% b4 reassessing. The effect on viable firms would be negligible compared to the effect on expectations (price-setting,speculative...)

Fiscal policy (not just in US) should remain supportive of consumers for another year because of the impact of the war. This differs from the policy mix that would have been ideal against the stagflation of the 1970s.

To be clear, the stagflation (stagnation+inflation) that I predicted last year is now expected to be recession+inflation for Europe. The US may avoid recession, depending on what its fiscal policymakers do.

Inflation may abate faster (2023?) now that we're heading into recession. The "when" will be determined by what policymakers do in the meantime, as well as war developments. Reliable forecasts can be made for 6-mo-ahead in normal times. Beyond this horizon depends on reactions.

Fiscal & monetary policy need not push in the same direction of tightening. Actually, a subtle combination can tackle rising inflation and slowing growth. I tweeted earlier about Tinbergen & Mundell (both Nobel laureates) on early work matching policy instruments to targets.

#US #GDP out for Q1, shows -1.4% decline instead of so-called "expected" +1.1%.

GDP #Inflation for the same is 8% annualized

In line with what I said about both in this thread, updating my forecasts over a month ago.

Powell's #Fed finally wakes up & raise #interestrates by the (very) long-awaited 0.5% hike.


He'll probably overshoot & have to lower rates next year. (Details in this thread.)

If you see something coming, you shouldn't dig your head in the sand & wait until it's hit your backside.

And if you don't see it coming, you need better glasses (or better econ models).

#inflation #stagnation #stagflation #recession

Commodity prices jumped 2-3 months ago, then stopped increasing.

Ongoing inflation can't be blamed on commodities, most of them even declined in price now.

"Central Banks can't control commodity prices" is a bad excuse for past inactions; understanding econ dynamics wd help.

Today's US #RetailSales up 0.9% Month-on-Month in Apr.

Earlier, #CPI up 1.2% for the same period.

In real terms, retail sales have declined (fewer items bought): #inflation makes you spend more on fewer things.

There's optimistic talk, from the Fed, that raising #InterestRates will reduce job vacancies without raising #unemployment much.

This won't happen because of the mismatch in the labour force (+other factors);from more than a yr ago👇

(typo: 4th not 5th)

Frustratingly, I hear again "Central Banks can't control commodity prices"; silly:

as if supply determines p w/o role for demand.

CBs affect commodity demand (hence price) via impact of rate rises on demand directly or on local prices thru exchange rates.

US #Stocks down >20%, almost halfway down to the meeting point with their fundamental value (orange line) depicted in the graph in this article 👇


Still as much down to go, if #shares are to come close to fair price #StockMarket; drop isn't over yet.

Even *nominal* #RetailSales (US) have declined now, -0.3% in May, much lower if you deduct #inflation.

#recession

Follow-up article to the 1st one in this thread (written last summer & predicting #stagflation) is coming up soon in @IntBanker. Watch this space...

1yr ago, I said there:
"We are now at a crucial stage to rein this in promptly before we have to resort to #recession-inducing actions to stop #inflation."

Three main Central Banks have raised #interestrates since yday, 2 of them aggressively. More on the way.
#Fed #BoE #SNB

Here is my latest on the #recession, with @GabrielTalmain:
internationalbanker.com/finance/dont-f…

It updates the forecast I made of impending #stagflation last summer, when #inflation was only 2% and #GDP #growth was strong at 7%.

Now, it's #recession (since 20 March).

cc @IntBanker

In case you're puzzled by high #employment (Fri's US data) coinciding w falling #GDP #growth, here's link to 2 tweets of 3 years ago predicting this, incl slide from a lecture I gave at #Fed:

twitter.com/search?q=kmaba…

In addition,US now has very low labour-mkt participation rate of 62%,so low headline #unemployment (called U3 unemployment rate) is calculated out of a shrinking base of 62% of potential workers & won't reflect this. Will be seen better in future releases of U6 unemployment rate.

US #GDP released today for Q2, showing 2nd consecutive decline, almost -1%.

As predicted in the article:
"Given the declared (and partly implemented) policies so far, we also expect the US to be entering a #recession"



cc @IntBanker
#EconTwitter
#Fed

US Nonfarm #Productivity's been declining 5 out of 7 last months (incl last 3 as -7.5%,-7.4%,-4.6%): it takes more ppl to produce same overall output; see my earlier tweet that this wd happen & why:


No surprise that #employment is strong while #GDP falls.

U6 (broader measure) #unemployment rate released on Fri jumps to 7%, as anticipated earlier here 👇


It's not going to be a soft landing.
#recession