Mission accomplished? Inflation conquered? Is that true?
Well, the same folks who said they didn’t see any inflation and then said even if there was inflation it was transitory now say “we got it.” High fives and a pat on the back. The Fed (Treasury) claims victory. Color me skeptical and not just because the “victory” came just a month before the election. Nope, underlying inflation is still around and there are a few “issues” coming along.
Phase two, or inflation 2.0, is already under way in the form of wage inflation. Not long ago the airlines had to pony up significant wage increases to their pilots and other union workers. Not much notice since strikes were averted. Now, Boeing workers are out on strike cutting aircraft deliveries and tomorrow (10/2/24) (unless there’s a settlement), east coast and gulf ports will be shut down because of union worker demands. Certainly the President will not intervene this close to an election because they need union votes (nicely played, unions). Which probably means huge wage increases and possibly shortages of almost everything.
With the Fed having recently dropped interest rates by 50bps (more to come?) to stimulate the economy, other sectors are certain to demand higher wages. Once again, demand is being stimulated with “catch up” wages. Whether the port workers actually strike or not, expect almost everything that comes onto our shores will cost more. Somebody (guess who) will pay more to make up for those wage increases.
So as the Fed sits around having a second martini (shaken not stirred) and congratulating themselves on their inflation success, they are actually considering more interest rate cuts. No matter what, you have to believe they are not totally naive(??). Lower interest rates mean a lower dollar which makes our grains (commodities) cheaper and demand for things like wheat, soybeans, corn etc. will be reflected in higher food prices. FYI, it is already beginning.
On the other hand and looking at the bright side, if inflation does go into phase two making things like food more expensive, people will have to eat less. Restaurants will have to offer smaller portions. Less cookies in each box. It’s a health plan. Inflation conquers obesity? Why not.
More inflation? Working in today’s current “spin” reasoning, the Fed can claim it’s not their fault for higher prices but YOURS. If you wouldn’t buy things, eat, drive a car, heat your home, etc etc there wouldn’t be inflation. Shame on you.
Kidding aside, inflation is not “fixed.” It’s still lurking and now wage price inflation coupled with new fresh Fed stimulus is a disaster in the making. The government can’t just keep throwing money around (here I am, government) and ignore the consequences.
