What’s Making It So Hard To Get Inflation Under Control?

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discussed What’s Making It So Hard To Get Inflation Under Control?. Here’s a excerpt from the episode:

Tobias: Yeah. The thing that bothers me is the Fed looks at those numbers and they’re like, “There’s no problem. There’s no recession. Just keep on doing what you’re doing.”

Bill: Well, I don’t know that that’s really what they’re saying.

Tobias: What are they saying?

Bill: I think they’re saying, “The wage inflation is a bigger issue right now than whatever risks to the economy there is.” But obviously, once the firings roll off then maybe the balancing act changes.

Tobias: Yeah, I have seen that argument– [crosstalk]

Bill: They’re terrified of a wage inflation spiral because then you can’t see stop inflation.

Jake: Because [crosstalk] getting too much money to pay for food and energy.

Bill: Yeah, God forbid people should actually make enough where labor actually wins for a little.

Jake: Yeah.

Tobias: I just don’t see how wage inflation is outpacing CPI at the moment. It looks to me like wage inflation wobble at CPI, which means that people’s purchasing power bases are getting poor, the wage inflation spiral.

Bill: Yeah, I just don’t know how sticky they think CPI is. You’re not managing for one year nor should you.

Jake: The Fed?

Bill: Yeah.

Jake: Oh, I thought they were just taking it a day at a time.

[laughter]

Bill: Yeah, I don’t want policymakers to manage for what’s going on today. So, I think if they had a longer view, I would be hopeful that they have a longer view

Jake: That’s going to require a lot of hope.

Bill: Yeah, I don’t know. They got us through 2020, okay? Now, you got to pump the brakes. Unfortunately, after every good night out, you get a hangover. So, I don’t know. I do wish Putin didn’t bomb a mall yesterday. That wasn’t great. It doesn’t seem like incrementally positive development for the commodity complex.

Jake: I knew malls were dead money, but I didn’t realize that was why.

Jake: Ah.

Tobias: [laughs]

Jake: Yeah, sorry. Too soon.

Bill: Yeah. But I’m glad it was you and not me.

Jake: [laughs] Ooh, crickets. Ouch. Yeah. It’ll be interesting to see how– Can I get rates up enough? I don’t know. Who knows? But just as you noodle through some of these dynamics of the interest expense for federal debt at a higher level, and it rolls off, and we have to refinance it, number one, who’s ponying up to buy these treasuries again? And then number two, at what price will they be buying these? If it’s just the Fed buying them, then I don’t know, how do you ever get inflation under control then?

Tobias: Yeah. I think the problem that we were discussing before we came on is that there’s an issue for the federal government if interest rates get too high and that interest rates need to be– The point at which interest rates are ahead of inflation seems to be the point at which the federal government runs out of money. That seems to say that’s not possible, that’s not tenable. So, we’re going to be keeping rates below the rate of inflation, which means that it’s hard to get inflation under control.

Jake: Yeah.

Tobias: Fortunately, Brandes Institute brought up the thing that says that “Value does well in inflation.” So, for purely selfish reasons that might be okay for us.

Jake: Yeah.

Tobias: Bad if you are– [crosstalk]

Bill: I don’t think it’s a good outcome.

Jake: Bad if you eat food or-

Tobias: Bad if you eat food. Yeah.

Jake: -you need energy to live.

Tobias: Or, drive your car.

[laughter]

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