A new inflation risk hangs over the Fed
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“if you thought mechanically that when wage growth is high and inflation is high, the only way these things go down is through higher unemployment — well you have to actually acknowledge now that maybe there is a wider set of possibilities.”
“Yeah, the idea that “no ‘help wanted’ sign should ever exist” is not to me a sign of a healthy economy. The story for much of 2021 was like, “Where have all the workers gone?” and the suggestion was that it must be that people don’t want to work. But in actuality, there were some sectors that were really eager to hire — Amazon expanding its warehousing staff probably did put pressure on other industries looking to hire. But competing sectoral demand for labor is just very different from saying people don’t want to work.”
“A widespread avian flu outbreak devastated the poultry industry in 2022, causing the deaths of more than 43 million hens. December egg inventories were down nearly 30 percent from the year before, just in time for the holiday baking season. Under the basic rules of economics, a persistent drop in supply leading into a time of increased demand is bound to have this result.”
“”We find that excess inflation is significantly correlated to each country’s own domestic stimulus and to various exposures of foreign stimulus,” concluded a trio of economists at the St. Louis Federal Reserve in a report published last month. In the U.S., they found that “fiscal stimulus during the pandemic contributed to an increase in inflation of about 2.6 percentage points.”
That’s a significant increase, even if it doesn’t account for the full run-up of inflation that took place during the past 18 months. Price increases accelerated in late 2021 and throughout 2022, ultimately peaking at an annualized rate of 9.1 percent in June.
“Other recent reviews of COVID-era stimulus bills have come to a similar conclusion. In a paper published in September, economists at Johns Hopkins University and the Chicago Federal Reserve said “fiscal inflation” accounted for “approximately half” of the recent price increases.
That’s troubling, they added, because “fiscal inflation tends to be highly
persistent…When inflation has a fiscal nature, monetary policy alone may not provide an effective response.”
So far, the chief response to inflation has been a monetary one.””
“As part of the new rules package approved by House Republicans this week, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) will now be required to score legislation on projected macroeconomic effects—including inflation.
That’s a welcome change that will provide more information to lawmakers and the general public about the impact of spending bills.”
“President Biden still isn’t what you’d call popular, but he’s closer to popular than he’s been in some time. On Jan. 11, Biden hit a 44.1 percent approval rating in FiveThirtyEight’s average — his highest mark since October 2021. That was 3 percentage points higher than it was on Nov. 9, which isn’t a huge increase in the grand scheme of things, but in this polarized age where any movement in the president’s approval rating is rare, it’s a veritable Bidenaissance.
This is the part of the story where you expect me to explain why this is happening. Which is understandable, except it’s impossible to know for sure what’s behind this shift. One leading theory, though: It’s because inflation has been slowing down. Prices in December 2022 were just 6.5 percent higher than they were in December 2021, which was the lowest inflation rate in over a year. Gas prices, another highly visible metric of the strain on Americans’ wallets, also plummeted from an average of $3.80 per gallon in November to $3.32 per gallon in December. These seem like pretty compelling explanations, considering how closely Biden’s approval rating was tied to the inflation rate and gas prices last year.”
“But is Biden’s luck about to run out? The discovery of a handful of classified documents from the Penn Biden Center and Biden’s Delaware home has generated arguably the first bad news story for Biden in months, and it’s fair to wonder whether it will reverse — or at least halt — his miniature political comeback. The few polls that have been conducted since these revelations suggest that Americans think Biden acted badly, and that could be dragging down his approval rating.”
“The squeeze on eggs is so bad that some grocery stores are reporting shortages, and some are even limiting the number of cartons customers can purchase.
It’s a significant change for what’s long been a reliably cheap staple, and there’s one major culprit: the bird flu.”
“The last year has brought the worst bird flu outbreak in US history, and there are no signs it’s going to relent soon. Some 57.8 million birds in the US — mostly egg-laying hens — have died as a result of bird flu outbreaks surpassing the previous record of 50.5 million in 2015, and it’s not letting up. Just in the 10 days prior to Christmas, 1.5 million egg-laying hens died.
The virus is expected to continue to circulate among wild birds and the ones we raise for food for the duration of winter, meaning egg prices — along with prices for turkey — could remain high for the foreseeable future.”
“most victims don’t die from the virus itself. Rather, they’re culled, or proactively killed, in a brutal effort to prevent the virus from doing even more damage.”
“a major reason why bird flu is so destructive in the US is that factory farms — with so many chickens and turkeys in such close quarters — are the perfect playing field for the virus, which is why farmers are so quick to cull infected flocks. But that very fact raises a simple, but surprisingly controversial question: If avian flu is so deadly and so economically destructive, why on earth aren’t we vaccinating birds against the virus?”
“For countries in which poultry exports make up a big share of the industry’s revenue — such as the US and many European countries — vaccines have largely been a nonstarter, even though they have the potential to severely limit the death toll of mass culling. Why? Blame the “DIVA” problem.
DIVA is short for “differentiating infected from vaccinated animals” — the challenge of identifying whether a bird is actually infected with avian influenza, or just has avian influenza antibodies after vaccination. Countries fear that importing eggs or slaughtered meat from vaccinated birds in countries where the virus is circulating could inadvertently spread it within their own borders by introducing the virus to wild or domesticated animals through discarded raw meat. That means that big poultry exporters like the US — which sends 18 percent of its poultry abroad — don’t vaccinate, for fear they’ll miss out on a huge part of their revenue: international trade.”
“without international coordination and predictable vaccine use, it doesn’t make economic sense for vaccine makers to invest in developing vaccines that protect against the bird flu. “We’re not going to make [massive investments] unless we’ve got major markets on board,” said du Marchie Sarvaas. “And the only way you’re going to get major markets on board is if you get some sort of political deal. And that comes to the trade point and the export point.””
“It’s also a geopolitical coordination challenge, a classic game theory problem where no major poultry-producing country wants to be the first to vaccinate. As a result, everyone sticks with the kill ’em all approach.”
“Inflation, abortion, the economy, and crime were the top issues for voters overall, the poll notes. Voters who saw inflation as the sole election issue broke for Republicans. Voters who also cared about abortion and jobs as top issues (but still cared about inflation) broke for Democrats.
The big lesson for Republican candidates comes further down the results when they asked people who voted Republican what their reasons were behind the vote. The very top reason people voted for Republicans was to “reduce government spending and get inflation under control.” Forty-nine percent of the people who voted Republican in the survey tagged this as their reason. It was followed by crime fears, immigration fears tied to the flow of drugs (even though it’s almost never immigrants who are responsible for drug trafficking at the border), and bolstering domestic energy production and getting gas prices down.
All the way at the bottom of the list was culture war agitation. Only 21 percent said they voted for Republicans to “combat cancel culture and protect freedom of speech.” Only 20 percent said they voted for Republicans to “keep transgender athletes out of girls’ sports teams and stop the promotion of transgender surgeries on our children.” Parents’ rights and getting “political agendas” out of classrooms fared a little better but still drove less than a third of Republican votes.”