Mike Konczal Profile picture
Dec 23 6 tweets 3 min read
Early gift for the White House: an absolutely perfect PCE inflation print, with core at 2% (!) target. War is over, if you want it.

Many, including myself, were worried about divergence with CPI; and PCE is what the Fed actually watches. But that didn't happen.

Let's dig in. /1
To give a sense of the trend here, let's look at the 3-month core PCE rate. As Powell notes, there had no actual drop throughout the year, all the news cycle events just washing out.

Finally we see a drop. It's just two months, but it's encouraging, especially under the hood. /2
We can break PCE inflation into the three categories that Powell and other Fed officials are watching: goods in deflation, housing peaked, and the rest of services slowing. We see all; notably in services, which has a much different balance of items than CPI. /3
In general, core services ex housing - what Powell watches for wage pressures - runs hotter in PCE than CPI. This divergence jumped this month but had been elevated in 2022.

Digging into this further is an ongoing project (I got covid this week so couldn't prep this, alas). /4
Last, services aren't dragged down by imputed prices, a concern @jasonfurman and others have flagged in previous months as falling stock prices are factored into financial services.

Though this happened earlier in the year, the last three months have been in historical norms. /5
Core services still remains elevated versus pre-pandemic trend, and goods won't be in deflation forever. But the trends over the past 3 months are exactly what a "soft landing" would have predicted, and it is important for the Fed to let these positive developments play out. 6/6

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More from @mtkonczal

Dec 13
Inflation thread: we've had single good months in the past year, hopes that were quickly dashed with reversion. But now we have two in a row, the first since summer/fall 2021.

But as opposed to then, the underlying trends are all pointing in the right direction. Let's dig in. /1
There are two key things Powell has discussed. The first is the three things he recently said he is watching for: goods in deflation, housing peaked, and the rest of services to be cooling down.

All three happened, and happened again for the second month in a row. /2
The second Powell wants is to see divergence between 3-month inflation and 6- and 12-month inflation. For the past year, they've all been lined up the same, a discouraging signal through the monthly noise of this-and-that.

But now we finally start to see a break downward. /3
Read 8 tweets
Dec 12
This linked paper from last year is really great and influenced my thinking throughout the recovery.

I was revisiting it lately, even before this conversation, and want to share some things I'm watching when it comes to the idea of reallocation between goods and services. /1
First, in reallocating from A (services) to B (goods), they discuss why wages/prices in A don't decline and the macro consequences.

The model does predict A should have lower job openings with a growing wage premium for B. However, we've seen the opposite in this recovery. /2 ImageImageImage
I've been a fan of taking nominal PCE spending and splitting it into price and quantities over time; to try and see the supply/demand curves.

Here it is for goods categories; and sure enough, you can glimpse demand moving along a convex supply curve in these subcategories. /3 Image
Read 6 tweets
Aug 24
3 things to keep in mind about inflation and today’s announcement:

First, compared to where we are coming from in 2022, resuming payments and canceling debt will largely cancel each other out in immediate demand and inflation. CRFB itself thinks this. 1/
They would, of course, argue that the correct baseline should be the one in which there’s more payments and no cancellation. One can always have a more hawkish baseline, but that’s not where we are coming from for comparison, and it assumes student debt doesn’t need addressing./2
But we know that restarting payments without fixing the underlying problems would throw a lot of people into distress, with serious economic consequences. Worse, it would miss this chance to put our higher education financing system on a better footing. /3
Read 6 tweets
Jul 22
Right now public sector employment is down by 600,000+ jobs, driven almost entirely by state and local employment.

Today the BLS updated its monthly State and Metro Area Employment, so let's look a little under the hood at where these losses are. 1/

The first thing that really surprised me was how broad these losses are. Virtually all states, whatever their politics and economies, are down, and as a percent down in a pretty consistent manner. /2
Contrast that with the Great Recession's state and local job losses. Here you can see there was a ton of variance, much of it driven by the housing bubble (e.g. Nevada's big losses). /3
Read 6 tweets
Aug 17, 2021
I wasn't sure last year, but I can this call now: the Fed's 2020 emergency lending facilities did more to help state governments than it did to help corporations.

Or, the MLF lowered credit spreads for states more than SMCCF did for corporations. (1/3)
Critics of Powell and 2020's emergency lending facilities tend to emphasize (correctly) the effect of SMCCF on overall corporate rates outside its small actual lending.

But they then criticize MLF for only making 3 loans. Yet if you look at its effects on rates, it's huge. (2/3)
There's a critical reevaluation of these programs happening; certainly the idea bankruptcy fixes everything is belied by the struggles in auto bottlenecks that threaten the current agenda. Also see this thread.

I hope this evidence adds to this. (3/3)
Read 4 tweets
Mar 8, 2021
The American Rescue Plan has $30 billion in federal transit funding.

Rather than self-perpetuating cycles of austerity, the ARP solidifies balance sheets across the nation. And not just for families; transit, states, schools, pensions, and more of our necessary institutions. 1/3
Where we'd normally see the recovery worse from cuts, and financial weakness used as a cynical excuse to slash, privatize, and never restore public functions, the ARP moves to stop that dead in its tracks.

Given the "balance-sheet recession" of 2010s, it's a remarkable move. 2/3
Here's a look from a month ago at what that $30 billion can do to help avert disaster in public transit.

So many things like this. So many crises of public institutions now easier to manage, and won't take place under threat of austerity, from the ARP. transitcenter.org/analysis-how-l…
Read 4 tweets

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