David Beckworth
@DavidBeckworth
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Senior Research Fellow @mercatus || Podcast Host at || Former U.S. Treasury Economist || Micah 6:8
DC, Nashville
Joined January 2012
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🚨 Excited to announce we have launched the Macro Musebot! 🚨 Powered by insights from 400+ episodes of the Macro Musings podcast, this AI is your personal guide to the world of macroeconomics, monetary policy, and all our past guests! (1/n)
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Hard for data to be as decisive as it has been last few days.
Today is a test in intellectual honesty for folks who said in various ways recessionary unemployment increases and job losses were critical to slower inflation and wage growth.
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Happy 247th Birthday to the country that has had this amazing run with real GDP! Let's keep it going!
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Worthing repeating that the 'Great Inflation' wasn't an overnight phenomenon, but a gradual unmooring that started in the mid-1960s and continued through 1970s. That's roughly a 15-year process!
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Just a reminder that the dollar size of the economy still far exceeds the pre-pandemic trend path. And it was not because of some immaculate spending that emerged out of nowhere. It was a policy choice, one that both propelled inflation and spurred a rapid recovery.
@jasonfurman
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Whoa, now that is quite the hot take coming from a Fed staffer:
New
#FEDSPaper
Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)
#EconTwitter
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Supply side shocks have contributed to inflation, but running aggregate nominal income this far above the pre-pandemic trend (and thus pre-pandemic productive capacity) would have created meaningful inflation even without the supply side challenges of the past few years.
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So the Fed will be bringing onto its balance sheet some of the mark-to-market losses from the banking sector? The Fed already is bearing a significant amount of mark-to-market losses--and actual net income loss--on its own treasury holdings and this will add more. The Fed, then,…
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The more I think about this, the more remarkable it seems to me: the U.S. government was able to inflate away roughly 20 percentage points of the debt/GDP ratio in just a few years. Who saw this coming?
@jasonfurman
@dandolfa
@AdamPosen
@USCBO
@Brian_Riedl
A closer look at the sharp decline in debt/GDP. As I noted earlier, the explanation is higher inflation => (1) higher nominal GDP (↑denominator) and (2) higher interest rates that lower market value of treasuries (↓numerator) => lower debt/GDP ratio => lower debt burden.
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I asked my 10-year old this morning if she preferred a NGDP level target or a final sales of domestic product level target. She said, "Dad, we all know a pure nominal wage target is better than either of those options, but we can't let the perfect be the enemy of the good."
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Fed Chair Jay Powell and global dollar markets in March, 2020.
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Overheating pundits this morning looking for inflation.
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Remember back in the days when Business Insider or some other site would ask you for your chart of the year?
This would be mine for 2021. It shows a 25-year deflationary trend for consumer durables pre-pandemic, but now it is causing high π. Hard to see this persisting... (1/2)
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The tone and substance of this article seem miles apart:
“Americans should brace themselves for several years of higher inflation”
That sounds ominous. How bad is “brace yourself” inflation? “[S]lightly less than 2.3% a year in 2022 and 2023.”
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What's missing in these "inflation is coming soon" pieces is distinction between a one-time vs sustained rise in inflation. Latter is what most worry about, but it requires sustained rise in growth rate of gov't liabilities and that is not being proposed.
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How exactly did supply disruptions permanently raise the price level 9% above its pre-pandemic trend? Hard for me to see how this large of a gap happens in the absence of excess aggregate demand pressures.
@MarcGoldwein
What’s your go-to evidence that inflation was in large part demand-pull? If it’s demand-push hard to see it disinflating in 2023 with these 2023 GDP numbers.
The evidence this year is very consistent with a cost-push shock, a term I wished I used more in 2021.
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Upshot of the high inflation: a sighting in the wild of the sticky menu price struggle.
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There was this thing called TPP that would have brought the weight of almost half of the world's economy to bear on China. But somebody ditched it.
Notice that critics of Trump’s (pragmatic) trade approach have ZERO alternative ideas that haven’t already been tried & failed.
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Please don't axe the FRED database. It is true public service.
Toomey seems to be implicitly threatening the research budgets of the quasi-private regional Fed banks, saying they’re using a “significant amount of federal resources.”
Notably, the Fed system isn’t funded by Congress. But its profits are given to the U.S. Treasury.
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And many of those recessions were caused the Fed mistakenly tightening (or failing to ease) because of the inflation worries caused by the surging oil prices.
Not every recession is led by a 50% rise in crude.
But every 50% rise in crude has led a recession.
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A key part of current U.S. inflation surge is the sudden jump in the price of durable goods. Services inflation has been more modest. This durable goods price jump is a big anomaly since they were riding a 25-year deflationary trend prior to the pandemic! (1/3)
@RameshPonnuru
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So much lost credibility!
The
@FederalReserve
's dilemma is tricky given how badly it has eroded its
#inflation
-related reputation and lost control of the policy narrative:
Act aggressively to regain credibility at the risk of derailing the recovery; or
Go slow and risk playing catchup continuously?
1/2
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A 🧵on the growing concerns that the higher inflation is becoming persistent. (1/n)
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So we have 7% CPI inflation, roughly 100% Debt/GDP, tapering and QT clearly signaled, and primary deficits as far as the eye can see. Yet, the 10 year treasury yield is at 1.73%. Maybe we underestimate the real demand for treasury securities.
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Inflation was viewed by a majority of U.S. population as the most important problem for much of the 1970s to early 1980s. Hard to appreciate it now, but public often saw it as a bigger deal than Vietnam War or Watergate. Volcker's war on inflation shaped by this reality. (1/3)
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Brace yourselves for whiplash: transitory deflation is coming!
GOLDMAN: Inflation’s overshoot is “entirely attributable to a surge in durable goods prices.” As supply-chain problems resolve, “this should eventually cause the supply-constrained categories to shift from a transitory inflationary boost to a transitory deflationary drag ..”
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Thread ⬇️
Mnuchin & Toomey are trying to perpetuate an absurd interpretation of the CARES Act solely on the basis of "trust me, I helped negotiate this bill", never mind the pesky statutory text. There are two sides to every negotiation...
Good to see Senate & House members push back
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Similar story for nominal PCE. It too is way above trend. Remember this fact every time someone invokes the profit-driven inflation story. Those profits do not happen unless we get this surge in nominal demand growth.
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Glad these guys are not at the Fed. They seem intent on having the Fed follow the ECB playbook from 2011 (i.e. monetary policy tightening in response to supply shock inflation).
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Okay, couldn't resist adding my touch to this meme.
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Wow. Chair Powell speech today is quietly screaming for a NGDP target. He notes the standard response of (a) seeing through inflation caused by supply shocks and (b) responding to inflation caused by demand shocks and outlines the logic behind it: (1/6)
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Can we all now agree on the following?
(1) This is not 1970s inflation redux
(2) Inflation expectations remain anchored
(3) Fed’s is still an credible inflation fighter
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Note that headline CPI closely tracks commodity prices. Consequently, there are two solutions to this high inflation: (1) the Fed preemptively tightens and potentially stalls the recovery or (2) capitalism does its magic on the supply side of economy and lowers commodity prices.
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Annie is not pleased with the implications of the chart.
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Glad to see the treasury market today resume the 700-year downward trending journey of safe asset interest rates outlined in
@paul_schmelzing
paper.
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Joined by
@paulkrugman
to discuss 'Year of Inflation Infamy'. Great conversation covering a lot of ground: past episodes of π, fugacious π, Fed's response, 2020 fiscal effect vs. 2021 fiscal effect, Princeton School of Macro, demographics, and more! (1/2)
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Amazing. A budget deficit of 10.3% of GDP in 2020 and a projected deficit of 9.0% in 2021 (IMF Fiscal Monitor) in Japan was not enough to prevent disinflation!
Even as consumer prices surge across much of the world, and massive rises in import costs, Japan simply WILL NOT countenance any inflation. Outright refusal. No dice.
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RIP 1.6% yield. We barely knew you.
It's almost like the "taperless tantrum" never happened.
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With an inflation rate of 140%+, Argentina’s “economic collapse” horse has already long left the barn.
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Really enjoyed
@jasonfurman
comments on the
@ojblanchard1
&
@benbernanke
paper at the
@BrookingsInst
today. Using a simple decomposition of nominal GDP and CBO projections, he shows there was excess aggregate demand (AD) near $2 trillion (1/n).
@davidmwessel
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The world bought almost $1 trillion of safe assets from the U.S. in 2021 and the U.S., in turn, has gone out and bought a vast amount of riskier assets from the world. Highly recommended article by
@M_C_Klein
. (1/2)
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Do I dare say it? Transitory inflation for the win?
NEW:
CPI Inflation declined to 3% year-on-year, the lowest level since March 2021, growing 0.2% month-on-month
Core CPI inflation declined to 4.8% year-on-year, the lowest level since November 2021, growing 0.2% month-on-month, the lowest since August 2021
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The Romers argue the narrative approach to identifying monetary policy shocks points to a potential recession in 2023-2024.
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It’s the composition, not the level of demand that is driving the recent uptick in inflation. Nominal aggregate demand is merely back to where it would’ve been had there been no pandemic.
@ritholtz
Yes, we had helicopter drops & supportive monetary policy, but they only restored the economy's dollar size to its trend. They plugged a hole. They didn't create above-trend spending, like we saw in the 1970s, which is needed to create a permanently ↑ trend inflation rate. (2/6)
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I normally enjoy Joe's hot takes, but this one... yikes. It is a good example, in my view, of why relying too heavily on the "money view" (i.e.liquidity preference view) of interest rates can cause one to miss the forest for the trees. Let me explain...1/n
Everyone’s realizing that the entire yield curve is set by the Fed, which is no more true today than it was 20 or 30 years ago.
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Monetary policy is already tightening
The greenback has surged to its strongest level in over a year, driven higher by rising Treasury rates
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“Most of the inflation-fighting is over… Not only is that a tremendous achievement for Powell himself, but it is also affirmation of the notion that monetary policy is too important to be left to economists.” Ouch!
@mattyglesias
via
@opinion
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Okay, you've seen the GDP headlines. Let's now take a closer look at some of the implications. Real GDP is (1) still 3.5% below pre-pandemic peak, (2) 5.1% below pre-pandemic trend, and (3) is projected per blue chip consensus forecast to never close the gap below trend! (1/n)
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Hey Siri, show me policies that will continue to lower the red line in this graph.
"Trump adviser Stephen Miller reveals aggressive second-term immigration agenda"
"limiting asylum grants,...outlawing...sanctuary cities, expanding the...travel ban with tougher screening for visa applicants and slapping new limits on work visas"
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Capitalism to the rescue.
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It's not looking good for the argument that running the economy hot will raise productive capacity of the economy (i.e. "endogenous aggregate supply"). However, running the economy hot did quickly restore the economy to its pre-pandemic levels or existing capacity. That should…
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New policy brief from former Fed staffers
@andrewtlevin
and
@billnelson2x2
on the cost of QE to taxpayers.
@FedGuy12
@NickTimiraos
@jeannasmialek
@rachsieg
@vtg2
@concodanomics
@HannoLustig
@ctorresreporter
@colbyLsmith
@greg_ip
@TeamCavuto
(1/2)
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Interesting that U.S. debt-to-GDP ratio rose more during the 2008-2013 period than over the past two years.
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Wow. So we now have 𝙩𝙬𝙤 𝙦𝙪𝙖𝙧𝙩𝙚𝙧𝙨 of 𝙥𝙤𝙨𝙞𝙩𝙞𝙫𝙚 real GDI growth! I am calling it--this is a non-recession thru 2022Q2.
Never thought I would be so eager to see a GDI number, but here I am on pins and needles waiting for this mornings release of Q2 GDI. It will reveal a lot.
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Forgotten but not gone: real demand for treasury securities.
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This enhanced use of dollar swap lines will, ironically, further strengthen the global dollar system and its powerful network effects. All else equal, that means higher future seigniorage flows to the US, lower US π, and ↓ chance for alternative currency system.
Coordinated central bank action to enhance the provision of U.S. dollar liquidity:
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This is the most under-appreciated item on Powell's list of reasons for why inflation will be transitory. In a few years, it will be the main thing we are talking about again.
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Apparently, the dollar index didn't get the memo that an inflationary spiral is imminent.
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Much handwringing on here about the rest of the world not buying U.S. debt anymore. That view, though, looks only at treasuries (where purchases by foreigners have slowed down). Total fixed income assets sold to rest of the world continues to grow at a stable pace (1/2)
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Jay Powell getting ready to set monetary policy for Argentina!
Libertarian outsider Javier Milei continues to hold a slight polling edge with just over a week to go before Argentina's presidential runoff
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Powell: "Exactly. No need for their central bank when I will be doing Argentina's monetary policy from inside the Eccles building."
BREAKING: 🇦🇷 Argentina President-elect Javier Milei confirms he will shut down the Central Bank
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This article is about why this crisis is likely to create lasting disinflationary pressures not inflation, but it has something special for all those fans of dollar dominance.
@TheStalwart
@adam_tooze
@Neil_Irwin
@dandolfa
@davidmwessel
@jeannasmialek
Inflation: A Misguided Fear | National Review
Disinflation is the real worry.
www.nationalreview.com
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A closer look at the sharp decline in debt/GDP. As I noted earlier, the explanation is higher inflation => (1) higher nominal GDP (↑denominator) and (2) higher interest rates that lower market value of treasuries (↓numerator) => lower debt/GDP ratio => lower debt burden.
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R-star is back! And it says we are headed back to a low rate world: “Based on the new r-star estimates for Canada, the Euro Area, and the United States, we see no signs of a significant reversal of the decline in r-star estimates evident in prior decades” …
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Still not obvious that the Eurozone is overheating.
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Global savings is up nearly 50% since the financial crisis.
Global debt owed by governments, businesses and households is up nearly 50% since before the financial crisis
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From the same article: “The yuan's use in global trade finance remains low… the yuan's share of global currency transactions for trade finance rose to 4.5% in March, while the dollar accounted for 83.71%.” - This should be the “Wow” part.
Chinese Yuan overtakes US dollar as most-used currency in China's cross-border transactions for the first time in history.
Yuan-share rose to a record high of 48%, UP from nearly zero in 2010.
U.S-share declined to 47%, DOWN from 83% over the same period.
Wow.
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Chair Powell on NGDP targeting: "Cato and Mercatus is the home court of nominal income targeting"
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Who says large fixed-income hedge funds can't do well?
The Fed's earnings are out. It had profits of $80.7 billion last year
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Powell: "Our tools don't work on supply shocks, they work on demand"
=> then why not adopt a framework that focuses solely on demand?
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Powell: "Inflation is not a first order concern for us" Yep, and market signals agree.
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Fascinating chart from the
@paul_schmelzing
,
@nfergus
,
@MartinKornejew
,
@MSchularick
paper covering 400 year history of central bank (CB) balance sheets across 17 advanced economies. It shows CB holdings of government debt as a percent of total.
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Interesting results on the long-run effects of pandemics on inflation.
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Okay, but do we economists have a duty to warn right now when markets are screaming low inflation over the next few decades?
Markets have skin in the game and have already priced in a large Biden relief package. And yet, no evidence of overheating as far as the eye can see.(1/4)
So while I'm all for avoiding undershooting; and I understand and support making up for past NGDP level drops, I think economists have a duty to warn against excess stimulus when that seems likely. In that respect at least, I'm with
@ojblanchard1
here, in spirit if not specifics.
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Maybe I shouldn't be, but I find this poll surprising. 🤔
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Wow.
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This is a good example of why even if the war ends tomorrow and sanctions are dropped, there will be long-term economic harm. Business relationships are now severed, business partners taking losses, and trust eroded. Easy to end a relationship, hard to start over.
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I appreciate
@TheStalwart
’s honesty here. The coin is, at a deeper level, a debate about moving countercyclical macro policy to “the realm of more overtly political players”.
This gives me pause. It requires more faith in politicians than I have.
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Great show with
@M_C_Klein
today where he carefully lays out the reasons why most of the uptick in inflation will fade as we reach the other side of the pandemic. (1/6)
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Delighted to have
@HannoLustig
on the show to discuss his work on safe assets, dollar dominance, treasury valuations, insuring taxpayers vs bondholders, and more! Shoutouts to
@m_maggiori
,
@helene_rey
,
@MarkusEconomist
,
@R2Rsquared
,
@pogourinchas
(1/3)
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Seven rate hikes in 2022 and a terminal fed funds rate at 2.75% to 3.00%? That would create the mother of all inverted yield curves!
🚨 from BofA: “We are cutting 2022 GDP growth to 3.6% from 4.0%. We are also raising our 2022 4Q/4Q core PCE inflation forecast to 3.0% from 2.6% reflecting…longer-than-expected supply disruptions. We now look for seven 0.25 hikes this year and a peak funds rate of 2.75-3.00%”
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Alternative Title:
Front page of the WSJ a day before Biden's inauguration
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Dollar-denominated credit issued outside the United States continues to grow. This is not the outcome one would expect if there were fears about U.S. debt and the global dollar system more generally.
@JohnHCochrane
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I guess treasuries are still a safe asset. Who knew?
everyone is stampeding into 10-year Treasuries so they can sleep well this weekend
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Well, this is amusing. The Fed is suing Bitcoin magazine for copyright infringement over the magazine's merch store which uses a play on words FedNow. (h/t
@biancoresearch
)
@CaitlinLong_
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Congress is effectively using the Fed as an off-balance sheet means to get out more economic relief. The Fed, in turn, is using off-balance sheet SPVs to do the same. Imagine Congress just funded relief directly instead of relying on two layers of off-balance sheet activity. 1/n
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Perfect storm brewing for price stability: (1) supply chain challenges beginning to ease and should put downward pressure on inflation and (2) modest monetary tightening already taking place via markets (↑dollar index & ↑ treasury yields) after Fed Chair nomination.
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Interesting work by
@sanjayrajsingh
, Oscar Jorda, and Alan Taylor that shows (1) hysteresis is real but (2) reverse hysteresis is unlikely. IOW, running the economy hot does not build up potential GDP, but negative AD shocks does tear it down.
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An amazing roller coaster ride for the 10-year treasury yield, despite no meaningful change in expected future primary budget deficits.
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Yawn....
The U.S. dollar’s reign as the world’s reserve currency is coming under threat, as evinced by the recent surge in gold prices, Goldman warns
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I am excited to announce that today is our hard launch for the 'NGDP Gap' series. It is a cross-check measure on the stance of countercyclical macroeconomic policy from
@mercatus
(1/n)
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Not sure about that conclusion. The war is showing how powerful the global dollar system is and how important it is to stay connected to it. This could give other countries pause about diversifying away from it and strengthen dollar dominance.
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