Powell and Biden are rolling the dice on inflation and growth

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Fed Chairman Jerome Powell and President Joe Biden are rolling the dice runaway inflation and slow growth.

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Global supply-chain disruption and cost pressure Businesses likely to continue 2023 but only by phasing out purchases of Treasury and mortgage-backed securities, the Fed is still adding significant liquidity. Raising interest rates until mid-2023 leaves money cheap for speculation.

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,The Fed will be under enormous pressure to print more money and solve the federal government’s funding problems to inflation.,

the doalta versionClimate-change-related events and the ravages of Evergrande have slowed the recovery Here and in China, and adding more liquidity to the system does not create new chipmaking Capacity Or reduce labor shortages. But cheap credit and high liquidity help push ups house prices 20% p.a., juice the stock market spx,
-0.58%

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DJIA,
-0.42%
And generally making a lot more money chasing too few stuff.

dangerous bubbles

This creates dangerous asset bubbles and torpedo affordability for young people. Around fast-growing cities, which places demands on high salaries on growing businesses trying to recruit talent.

Many Business Leaders Feel the Bounce Hard work, and material cost pressures are becoming structural– Not fleeting. Building those expectations into annual business plans will create a self-sustaining wage-price spiral.

GDP growth and inflation depend significantly on labor force and productivity growth. During the 2010s, they grew at a respectable pace and President Donald Trump’s program of reduced taxes and regulation achieved a 2.5% increase.

We can’t do much about the near-term growth of the Native working-age population, but our immigration policy is shabby. the limit is Bleeding with less skilled asylum seekers Those who will be looking for employment in industries where opportunities are dwindling. Hybrid office-home work arrangements and automation are permanently destroying jobs at restaurants, retailers, dry cleaners and the like.

Biden strongly opposes sealing the southern border and re-orienting immigration by prioritizing skilled workers, who would boost growth and productivity rather than potentially putting new burdens on social welfare programs.

no-work-required chill tax credit Check, big meal ticket allowance bigger and bigger Affordable Care Act Subsidies Making it easier for major working-age Americans to exit the labor force.

zombie capitalism

Wasting capital is a hectic thing to do in Washington these days. Keeping short-term rates near zero and benchmark 10-year Treasuries below 2% Record boosts junk bond sales And that multiplies the number of zombie companies—businesses whose revenue doesn’t include labor and material costs and interest payments.

As the Fed normalizes interest rates, these companies will be unable to roll over the debt and face bankruptcy. A 2% jump in mortgage interest rates could easily pierce the housing bubble. The combination could mortgage the Fed to phase out bond purchases and block the normalization of interest rates.

domestic deduction Petroleum production will not enable ordinary households to buy electric cars at high speed. EVs can only be manufactured at the pace that science drives down battery costs and shortens charging times. Beyond adequately funding research, additional federal funding will not yield much and would be better spent elsewhere.

Biden wants Bias federal subsidies for EV purchases toward union-built vehicles, Unfortunately, GM’s GM,
-1.89%
Holy offerings create a fire hazard if parked in the garage, and Ford’s F,
-1.26%
EVs are less motivating than Tesla’s TSLA,
-1.86%,
Silencing the UAW only threatens public safety and wastes capital by shifting resources from more innovative to less-capable businesses.

Reducing the pace of investment in green technology would sharply reduce the cost of wind, solar and batteries, but would benefit productivity and growth in the economy more if markets were to distribute capital for their optimal allocation among green industries and other activities. have been left to do.

slow growth

Once the economy fully recovers from the pandemic, irrigated And Administration Both are forecasting a sub-2% trend increase. This is well below Trump’s record and an acknowledgment that his policies are slowing labor force or productivity growth.

The massive reconciliation package will likely shrink, but most of it will be completed by early end dates for new and continuing programs such as the child tax credit and other expanded entitlements. Paid with new revenue over 10 years, which would result in a large federal deficit over the next few years.

will be under the Fed The enormous pressure of printing more money and inflation to solve the federal government’s funding problems,

Economists advising Biden suggest Fed Should set your inflation target above 2% to better support growth,

Hyperinflation of the 1970s indicates otherwise, but this is how you put lipstick on a pig.

Peter Morrissey is an economist and emeritus business professor at the University of Maryland, and a national columnist.

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