The CPI services inflation data is highly suspect. It has diverged from PCE services inflation in a huge way. These two measures of the same sectoral inflation now diverge by more than 3 percentage points.

If we deflate nominal weekly earnings with CPI inflation, we get a gargantuan decline in real weekly earnings which supposedly have been falling at a 4% annual rate for six consecutive months now. 4%!! There has been nothing like this going back to 1981.

If real weekly earnings have been falling by a four percent annual rate for months now consumer spending should be collapsing. Maybe it has been weaker than the first pass data so far says, but we see no signs it has been collapsing.

If we do the same using the PCE services deflator we get a far more plausible 2 % decline in real income.

We should ask ourselves, why oh why would we be having a gargantuan decline in real earnings recently?

The reason is that because at turning points into recession there are sometimes many grave statistical errors which mislead, sometimes fatally. We have more this time around than in the past:

Payroll growth massively above household survey job growth

ISM services PMI booming and S&P global services PMI crashing

Implied business productivity crashing like never before in a close to constant GDP

A completely off-the-charts statistical discrepancy with net domestic income almost 5 percentage points above net domestic expenditures when in reality they are the same

And now a huge divergence in two measures of services inflation in a basically services economy

I’m spooked by my memory of 2008 when faulty data said the economy was doing just fine when in fact it had entered into the deepest and most protracted economic contraction since the 1930s.

I fear a puerile Fed, trying to be as hawkish as can be for fear the kids on the block will call it chicken, will select faulty data in a way that will support more policy rate increases even though the turning point into recession has arrived. So Stephanie is right to expect a recession and higher unemployment soon.

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What I liked most about this post was the headline -- though perhaps for a connotation which Ms Kelton did not intend.

When I read, "The Rate Hikes Will Continue Until Morale Improves," my first thought was, "*Whose* morale has to improve?"

The average American's? The working class's? No! It's the *ruling class's morale* which has to improve before the Fed can stop hiking interest rates. The stock market as the measure of capitalist morale: I should have had that insight forty years ago!

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Marshall’s comment is chilling.

But is it right to say that hikes CAUSE recessions? Seems to me it’s the fiscal tightening. The rate hikes elevate “inflation” which cause the real govt deficit to be too low to support savings desires - which are in real terms. So it’s up to nongovt credit expansion to pick up the slack of both tighter fiscal and the real decline of the govt deficit due to inflation. And without that you get that paradox of thrift domino leading to spending collapse.

In 08 seems like the credit expansion - nongovt defict spending - was briefly turned off bc of the fraud discoveries and then the govt deficit was immediately too low and then again paradox of thrift did its thing and we ended up with higher deficits the ugly way.

I see higher rates supporting personal income and I have yet to see aggregate decline in the credit expansion. Composition shifts, yes. And it’s the same thru every higher rate environment. If FRED data is wrong, it’s wrong going back decades. But I don’t see how a 4% rate - which if applied to the whole $31 trillion debt equates to over a trillion in new spending (on interest payments), adding to the govt deficit ex post minus the dynamic increases in tax revenues - can be disinflationary without further disruption to/restriction of the credit expansion - which hasn’t happened and doesn’t appear to have ever happened bc of hikes.

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The FED raising rates is indicative of how policies that take place in the current chaotically unbounded system and have not recognized the most efficacious place in the economy to implement such policy are completely stupid of course.

If we implemented a 50% Discount at retail sale and then had the FED or some other monetary authority to rebate every cent of that discount back to the retailer we would be implementing beneficial price and asset deflation into profit making economic systems. Such policy would have macro-economic effect as retail sale is the terminal ending point of the entire economic process and hence by definition the terminal summing point for all costs including profit. It is also a point where every individual economic agent participates so that universality is also of macro-economic effect.

The benefits of this policy would be that inflation was forever ended because we've never had yoy inflation of 50% and hyperinflations can be avoided with a couple of no-brainer regulations. It immediately doubles everyone's purchasing power and potentially doubles the free and clear demand for every enterprise's goods and services. It's also an offer no retailer can refuse because if they decided not to opt into the policy they would have to get 100% of their price from consumers when all the consumer needed to do would be walk next door where they would only have to pay 50% of the price.

Pair the 50% discount/rebate policy with a $1000/mo. universal dividend for everyone 18 and older and you could eliminate virtually all payroll taxes that every worker and every enterprise pay and you'd have the most beneficial policy program since forever and isolate the monstrously parasitical and costly private banking system from every other legitimate business model.

Take the benefits of these two policies directly to the general populace with a mass movement and you'd be able to herd the entirety of the political apparatus toward their implementation...instead of trying to educate them in complicated, less direct and none isolating of the major bad actor ways that MMT, etc. have been trying to do for a couple decades. MMT etc. are fine and right, they just haven't figured out the policy program that accomplishes these policy benefits and the place and time of their implementation.

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Last year team transitory pointed to used car prices and said inflation was overstated. More of the same now 1 year later, now it is OER. Summers, Furman and others have been right while most observers have been wrong during the past year.

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Actually both sides have been wrong. The right is wrong because their economic orthodoxy has been wrong since forever and the left is wrong because their keynesian orthodoxy which has morphed into neo-liberal macro is also wrong. Neither side is comprehending what needs to occur probably mostly because the present monetary and financial paradigm concept (the real/operant problem) hasn't changed for the entire course of human civilization and hence we have become so acculturated to it that we're deeply unconscious of it.

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As a non-investor, the three things I care most about are food, energy, and housing. From your post, it would seem that food and energy prices are well under control, but housing is a large part of the economy. Raising interest rates is not going to make housing cheaper for the majority of people as the price of money to buy the house will rise even if the price of housing falls. However, if interest rates don't rise, it is clear that rich people with excess money will continue to use houses as a store of value, which is obviously not a good thing for the average American.

Is it possible that this is merely a taxes issue? By this, I mean that if there were more taxes on higher income Americans, they would be less likely to buy up real estate all over the country which would cause the housing market to stabilize. The extra taxes would go toward building better infrastructure so that prime real estate in the middle of cities would be more accessible, and would also have a larger footprint since people could get around more easily.

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Your post accurately makes the point that people vote their pocketbooks. Macro-economists of all stripes are basically caught up in abstractions and so do not know how to directly benefit the individual let alone the individual and commercial agents at the same time. If I told you that with 3 policies we could end inflation forever, double your purchasing power, potentially double the demand available for every enterprise's goods and services, completely eliminate payroll taxes, cut individual and corporate income taxes by 50-75% and thus directly benefit every individual and commercial agent...you'd have to be dead not to be interested. Paradigm changes and their policies are always absurd...until they become the miracle that, "who could have imagined it".

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