The anti-inflation pivot of 2022

You do this enough and your allies become collateral damage, the system begs for a change. Rest of the world starts to only base their trades in gold (or some other standard) and when faced with USD debt, change the debt amount through policy. US has to keep their (future) allies afloat either openly or with hidden support.

The reason interest rates are going up is not a mystery. A dozen people meet semi-quarterly and vote on what the interest rate should be.

I do agree though: suggesting that the Fed stop rate hikes today because of the international consequences is madness. We are getting a much needed rebalancing, the Fed is kind of exporting deflation but this is being made up for with exchange rates moving downwards, the Fed's low rates during the last decade have heavily distorted international markets, continuing isn't helpful.

I think the only reasonable objection here is whether individuals listed below could be considered policy makers, but the pattern seems relatively clear to me. Note that economy is weirdly connected to how a person feels. Just hearing that recession is just around the corner could potentially set it off ( not completely unlike say.. shortage after hearing something is about to be no longer accessible or run on a bank after finding out it is about to under ). And not surprisingly, the same decision process also applies to CEOs[9].Edit: And of course, it helps when all the platforms sing the same song nearly in concert.

Snippets indicating thought process from various government officials and their assorted influencers can be found with basic google search[1]("Some commentators argue that the US needs a recession to bring inflation down.") Those tend not to be some random bloggers with an idea, but rather a person with agenda in mind sometimes sending trial balloons into ether. Now those commentaries are much more careful now after initial outcry of some poorly chosen words, but Bloomberg in April[7] reported that "Labor demand is poised to ease, which will help the Federal Reserve tame inflation with less risk of triggering a recession." ( see also: "The Fed view is that when there's too much of an imbalance between labor demand and supply, you get a dysfunctional market with too much turnover and pay increases that lead to a unacceptable level of inflation.")

If you follow Powell's original comments that raise all that recent ire, you could see how those could be easily construed as "Lets crash the economy" ( "There’s too much demand. For example, in the labor market, there’s more demand for workers than there are people to take the jobs, right now, by a substantial margin. And, because of that, wages are moving up at levels that are unsustainably high and not consistent with low inflation. And so what we need to do is we need to get demand down, give supply a chance to recover and get those to align.")

Note that the May 2022 interview[8] comments are much softer as a result of pushback to some of the previous comments ( "And we need to get back to 2% inflation, that’s the main thing. The main lesson is we must do whatever, you know, what we need to do to get inflation back to 2%. And we have the tools to do that. And we will." || "I will also say that the process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like. " ||

"Ryssdal: What keeps you up more at night: the prospect of inflation sticking around? Or the idea that you’re going to cause a recession?

Powell: Well, look, I think it’s a very challenging environment to make monetary policy. And we certainly, our goal, of course, is to get inflation back down to 2% without having the economy go into recession, or, to put it this way, with the labor market remaining fairly strong." ||

"The main lesson is we must do whatever, you know, what we need to do to get inflation back to 2%. And we have the tools to do that. And we will."

Naturally, with few exceptions, few current officials ( say from FED or current Biden administration ) will put themselves on record by saying something like this, but former officials[4] have some reasons to do it regardless ("“Almost certainly there will be a full-blown recession. If we’re not in one yet, I think we will be in the next 12 months,” Dudley, the former president of the New York Federal Reserve, told CNN in a phone interview.").

Separately, sometimes for their own reasons, various executives from private sectors feel the need to weigh in [5]( Stephen Ross in June predicted that “employees will recognize as we go into a recession, or as things get a little tighter, that you have to do what it takes to keep your job and to earn a living.” Later that month, Intuit CEO Sasan Goodarzi told MarketWatch that “the power is shifting to employers,” and as “people move from hiring to now cutting jobs, and a possible recession, you might see more of a move back to work.”) on future recession and its impact on WFH.

And just to add a little spice to this, I wanted to add my favorite relatively recent opinion piece[10], where author gleefully notes tech jobs will finally stop being cushy ("The chief executives of Meta Platforms Inc. META, +1.18% and Alphabet Inc.’s GOOGL, +0.26% GOOG, +0.21% Google have warned employees of tough times ahead — with Mark Zuckerberg telling employees on the last day of the second quarter that the company faced one of the “worst downturns that we’ve seen in recent history” —and Microsoft Corp. MSFT, -0.09% is slowing hiring in some groups and eliminating a few jobs. Even the world’s most valuable company, Apple Inc., AAPL, +2.51% reportedly plans to scale back hiring and spending, after profligate spender Amazon.com Inc. AMZN, +0.91% signaled cutbacks earlier this year.")

We can then move to state officials, who stand to gain/lose from RTO/WFH. For example, NY Adams governor[6] ( "Adams has in recent weeks mounted a major advocacy push for private businesses in the city to order their employees back to their offices, arguing that the economy at large is hampered by telework policies popularized during the pandemic" || “I’m trying to fill up office buildings, and I’m telling JPMorgan, Goldman Sachs, I’m telling all of them, ‘Listen, I need your people back into office so we can build the ecosystem.’).

Naturally, after several recorded conversations that indicated that type of thinking, PR campaign began to claim that it was never the case[3]("We're not trying to have a recession, and we don't think we have to,"||"That's what we're trying to achieve and we continue to think there's a path to that. We know that path has clearly narrowed… and it may narrow further.") and FED is actually trying really hard not to say stuff out loud[2] (“They’re trying to slow down the overall economy, and that would include firms’ appetite to hire, without ever saying that out loud,” ).

Perception is reality and it looks to me like more than just policy makers are involved in creating this particular scenario ( recession ). All this while the job market remains stubbornly strong.

Still, I might be wrong. I am open to arguments.

[1]https://www.ft.com/content/31b15e03-929f-40c1-b2f8-782df4bd6... [2]https://www.bankrate.com/banking/federal-reserve/will-the-fe... [3]https://www.axios.com/2022/07/28/recession-fed-powell [4]https://www.cnn.com/2022/08/04/economy/recession-inflation-f... [5]https://fortune.com/2022/08/17/recession-return-to-office-ce... [6]https://www.nydailynews.com/news/politics/new-york-elections... [7]https://www.bloomberg.com/opinion/articles/2022-04-12/fed-s-... [8]https://www.marketplace.org/2022/05/12/fed-chair-jerome-powe... [9]https://fortune.com/2022/06/17/majority-executives-anticipat... [10]https://www.marketwatch.com/story/its-the-end-of-fantasyland...