That Sinking Feeling
Mad magazine, the foundational text of my diseased worldview, once ran a famous infographic of Richard Nixon making promises about the Vietnam War as he slowly sank into a body of water.
It came to mind today as I read about Fed Chairman Jay Powell’s latest testimony in Congress. Not long ago, Powell was suggesting inflation was transitory. A little later, he suggested inflation could at least be defeated without a recession. Today he allowed that, oops, maybe a recession was coming after all.
As a die-hard member of Team Transitory, I am deeply sympathetic to Powell and sinking right along with him. I would still like to think a little monetary-policy normalization shouldn’t be enough to tip the US economy into a recession. Bill Dudley, a die-hard member of Team Not Transitory, suggests this is wishful thinking. He predicts a recession is coming in the next 12 to 18 months. We shall see, but his team seems to have the better track record with predictions lately. (Also, full disclosure, I’m a Tottenham Hotspur fan, if that gives you any idea how committed I am to lost causes.)
Meanwhile, Americans face a near future of lower living standards, warns Allison Schrager, as all the tech and luxury subsidized by cheap money in recent years gets repriced virtually overnight. She suggests we’ll still end up better off than we were 20 years ago, before the advent of, say, cellphones, Uber Eats and TikTok. But Mad barely publishes anymore, so how much better off are we, really?
Bonus Economics Reading: President Joe Biden’s call for Congress to pass a gas-tax holiday is “the impotent calling on the dysfunctional to do something ineffectual.” — Liam Denning
The Market’s Verdict
Because LOL nothing matters, Powell’s recession talk was apparently read by some traders as a dovish sign, so stocks rose. And there is a serious argument in support of Team Soft Landing that suggests markets are already doing some of the Fed’s heavy lifting by squeezing financial conditions. For example, Jared Dillian, in a bit of market commentary written exclusively for Bloomberg Opinion Today, has this to say about oil:
“It's hard to believe, but at one point this morning, oil was down over 22% from the highs, which doesn't exactly fit the inflationary narrative. Since oil is the primary driver of inflation, if oil declines, the Fed theoretically doesn't have to hike interest rates as much; correspondingly, interest rates were markedly lower off the yield curve, with 10-year interest rates at one point declining to 3.12%.
“The narrative is that by restricting supply and subsidizing demand with a gas-tax holiday, the Biden administration will be successful in driving oil prices higher, but market forces are doing most of the work here, with Powell today acknowledging a recession is a possibility, however remote — and the market has responded accordingly.”
A little jawboning here, a little oil selloff there, and that landing pad gets cushier.
Home-Cooked Terrorism
Rusty Bowers, the Republican speaker of Arizona’s House, on Monday told the Associated Press that he would vote for Donald Trump if the former president was on the ballot in 2024.
This is hardly unusual, except for the fact that Bowers on Tuesday also told the Jan. 6 commission that he had refused to help Trump break the law to overturn the 2020 election.
“What he did the first time, before Covid, was so good for the county,” Bowers said, by way of explaining his continued support for Trump. Other than mishandling a pandemic and trying to overthrow the government, Mrs. Lincoln, how did you like the play?
Maybe we should cut Bowers a little slack. As Tim O’Brien writes, Bowers’s reward for doing the right thing was an avalanche of threats from angry Trumpians. He was one of several people who were terrorized for doing their jobs and upholding the law, Tim notes. Declaring undying fealty to Trump may just be a tactic to get people to finally leave him alone.
Such treatment was part of a long, complex pattern of threats of violence that peaked with the attack on the Capitol, Jonathan Bernstein writes. Prosecutors may struggle to prove this mayhem was Trump-directed, but it was at least Trump-adjacent. And it could just be a taste of what’s to come if he’s on the ballot again in 2024.
Telltale Charts
OPEC+ is running out of spare production capacity, warns Javier Blas, who argues the Emerson, Lake and Palmer of petroleum should resist the urge to pump more and let high prices take care of demand (see markets doing the Fed’s job for it, above).
Despite what you’ve heard in the news, companies are generally managing inventories fine, writes Nir Kaissar. These are not the droids inflation causes you’re looking for.
Bloomberg
