Lightnews — Scholar-powered news

LightNews

Diane Swonk

@dianeswonk.bsky.social

8.3K followers 360 following 1.1K posts

Chief Economist, KPMG, opinions my own

Posts Media Videos Starter Packs

Diane Swonk @dianeswonk.bsky.social · 44m

This research from the Boston Fed suggests that inflation expectations may becoming unmoored. That means higher inflation is becoming normalized, which could be own self-fulfilling prophecy on a more sustained bout of inflation.

Here are key takeaways:

Diane Swonk @dianeswonk.bsky.social · 1d

4Q is weak but get a bump in 1Q due to tax cut expansions & larger than usual refunds, which consumer treat at windfalls. That could also buoy inflation more even as it gives a much needed boost to employment. However, debt consolidation will occur as well.

Diane Swonk @dianeswonk.bsky.social · 1d

Rents are an outlier & falling.

The environment is challenging - understatement - for the Fed which appears ready to cut rates at least once, likely twice more, this year.

Diane Swonk @dianeswonk.bsky.social · 1d

Service sector inflation remains sticky. This is being buoyed by affluent household & the more dominant role they are playing in the economy.

Tariffs & insurance costs rising, along with “opportunistic” pricing behavior.

Diane Swonk @dianeswonk.bsky.social · 1d

Inflation increased “moderately” - that is far less than ideal and the wrong direction for the Fed.

What matters to consumers is that key prices are rising - food, electricity, maintenance.

Diane Swonk @dianeswonk.bsky.social · 1d

Multiple job holders rebounded. Since the 1990s that has been correlated with a longer expansion, but could reflect vulnerabilities as well. It is an odd shift since 2000 and has correlated with better economic conditions but makes for fragmentation & juggling problems.

Diane Swonk @dianeswonk.bsky.social · 1d

AI replacing some jobs on banking, tourism and vehicle sector - latter lost more jobs to automation than offshoring. Yes, you read that correctly.

Diane Swonk @dianeswonk.bsky.social · 1d

Wage growth is moderate not modest. However, some reports of cost of living adjustments - COLA. Blast from the past and a shot over the bow on fears of a more entrenched inflation.

Diane Swonk @dianeswonk.bsky.social · 1d

Biggest reported shortages in manufacturing, construction & ag - reflects constraints on supply of workers due to shifts in immigration policy. There were still over 400K unfilled manufacturing jobs at the end of August, above pre-pandemic levels, despite the loss ~ 80k manufacturing employment.

Diane Swonk @dianeswonk.bsky.social · 1d

Fed’s Beige Book survey of economic conditions is out.

Lots of dissonance for the Fed.

The low hire/low fire environment persists, along with pockets of labor shortages.

Diane Swonk @dianeswonk.bsky.social · 1d

Yellen & Powell both attempted to run a “high pressure” economy to enable unemployment to drop and deliver more equal wage when inflation was too low. That is not an option at the moment, due to persistent inflation. It has been done & talked about.

Diane Swonk @dianeswonk.bsky.social · 1d

Actually, they do a lot of research on the issue. They lack the tools to do much about it but have some amazing work.

Diane Swonk @dianeswonk.bsky.social · 2d

Powell:

We do not have a view on immigration - we take it as it arrives.

The changes are larger than expected with only beginning to see the effects. Big economic factor - fewer people to work and pockets of labor shortages are emerging.

New people create supply and demand.

Diane Swonk @dianeswonk.bsky.social · 2d

Powell embraces “healthy debate” about the tensions we are facing in.

When I was an investor, I hated when everyone agreed.

Debate at moment within the Fed are some of the richest and should be healthy given we have two things happening at once - inflation & weak employment.

Diane Swonk @dianeswonk.bsky.social · 2d

State level UI estimates can add up. Generally private data seen as supplement to government data; not the main course and not enough.

Will be better when we get the whole data. Not as much data on inflation.

Fed leans in heavily on anecdotes as well. Beige book out tommorow. More color.

Diane Swonk @dianeswonk.bsky.social · 2d

$900B to Treasury, which helped offset debt and deficits. That is a misunderstood concept.

Employment concern at moment but risk on higher inflation still roughly in balance.

Transmission of lower rates blunted by ultralow rates in mortgage rates that were locked in.

Diane Swonk @dianeswonk.bsky.social · 2d

Fed will stop rolloff in balance sheet reductions in October. Powell used his humility to say Fed was slow to stop balance sheet expansion.

Need liquidity in short-term rate market and avoid a September 2019 liquidity crisis. Balance sheet has to be larger than past.

Fed has returned…

Diane Swonk @dianeswonk.bsky.social · 2d

Chair Powell receives the Adam Smith award. Data limited but outlook for employment and inflation not changed.

In person Powell emphasizes MAYBE we have seen growth pick up. Learn more dovish than his text, with rising downside risks to employment. BUT evolving outcomes - more caution next year

Diane Swonk @dianeswonk.bsky.social · 3d

Prez Anna Paulson, who rotated on to the FOMC voting committee next year, supports two additional rate cuts this year but caution next year. Worries ab employment & risk to low income households. Economy carried by affluent. BUT cautious cuts in 2026.

Diane Swonk @dianeswonk.bsky.social · 3d

Waiting for crisis is still extremely costly and means higher long term interest rates.

Zetner underscore that there is no tolerance for Fed to step in & rescue gov’t due to political pressure. There is a premium on long-term yields spikes when market sees political threats to Fed independence.

Diane Swonk @dianeswonk.bsky.social · 3d

Where will we get the political courage to deal with both sides of the revenues & expenditures.

“Liz Truss moment is dangerous thinking in that it was a positive…”counting on the @federalreserve to step in like @bankofengland not productive.

Diane Swonk @dianeswonk.bsky.social · 3d

Panel @petersonfounda1 Calthleen Kock, Karen Dynar, Ellen Zetner, Kent Smetters.

“The idea that the US is too big to fail is not true.”

Will not rule out of a Liz Trust moment.

Once things go wrong, it is too late.

Diane Swonk @dianeswonk.bsky.social · 3d

Halloween scare. Discussion of debt and deficits:

AI can’t save us - debt and deficits on unsustainable path & crisis risks rising.

Quote of day:

“We might find someone who argues we are on a sustainable path, but they would not be qualified to speak on this panel.

Diane Swonk @dianeswonk.bsky.social · 3d

Salim Ramji, CEO of Vanguard lays out the need for access to wealth accumulation for individual investors as a key equalizer. Investors do not know what they can spend & how to limit need to borrow or liquidate their 401Ks, which set them back. Leans into fixed incomes markets.

Diane Swonk @dianeswonk.bsky.social · 7d

The hallowing out of the middle class and the economy. We are at a precipice. My take here.

kpmg.com/us/en/articl...

Bye, bye Miss American Pie

The outlook: inequality and consumer angst