The Economy Is Strong and Inflation Is Low. That’s What Worries the Fed.

May 21, 2019 · 186 comments
D.j.j.k. (south Delaware)
A economy that is built on coal jobs and fracking we all need to be worried about. Coal is causing permanent atmosphere damage and our small brained GOP can’t understand they are all an accessory to harming all of humanity. Very sad.
Chuck (CA)
@D.j.j.k. coal is not only a very small percentage of total energy production in the US now days (not a single new coal fired power plant in more then 20 years) but utility companies are abandoning coal and shutting down their old plants as fast as they possibly can. You need a better meme then "coal is bad" because in the US.. coal is dead and it's not coming back.
Lorem Ipsum (DFW, TX)
I'm getting mighty Tired of these testosterone-free tweets and their Seemingly random Capitalization. Note to POTUS: The bombast isn't fooling anyone.
David Gage (Grand Haven, MI)
Inflation is not caused by the Feds borrowing money from whomever. They can borrow the entire federal budget and the inflation would still be zero. Inflation will only come in when the feds can no longer borrow, from say China and Japan, and have to take the same approach they took to finance the Vietnam war and that would be the same as the approach the Venezuelan government has taken and that is to create more currency needed to pay government contracts and book this as a one sided entry into their books.
Robert Gustafson (Chicago)
The target CPI of 2% was only needed in the dark ages of US Fed policy because it made moving the levers easier. There was only one lever to move - federal funds rate. After the 2008 crash, when interest rates fell to zero (how do you lower interest rates then?), new tools were developed to cope with the collapse. Quantitative easing was invented. The TARP fund (although not enough was allocated by Congress) helped to buoy up companies with good assets, but poor management. TARP was used to rap the knuckles and heads did roll. The Fed also earned about $80 billion in their buy low, sell high program after the crash. Mario Draghi, a smart guy (MIT graduate I believe), also adopted the QE approach to fixing the European economy, with good results. With low interest rates since 2008, folks have adapted - just like good control systems. To artificially try to go back to the pre-2008 days with Fed policy is probably a bad idea. A sign that the Fed has not learned from the 2008 lesson.
NJ Thinker (USA)
A bit of a sloppily written piece here...the most commonly used inflation measure, yoy CPI, was 2.0% in April (up vs. the prior month's 1.9%) compared to the article's cited March's 1.6% (I'm assuming JS is referencing the Fed's preferred gauge, core CPI, which printed at 1.55%)...and citing the loon Kashkari's point about the Fed embarking on hiking too early in coming off the zero bound with one hike in 2015 and another in 2016 slays me...inflation in housing, which is obviously folks' #1 expense, is real, especially along the coasts, but the long-run inflation or disinflation story is all about the rise of China and cheap factory labor there and in other low-cost countries plus U.S. demographic shifts...look to Japan for a preview on where we're headed...the fact that negative yields prevail in many global markets (on ~$10 trillion in bonds) and the Fed hiking program has stalled with benchmark interest rates well shy of nominal GDP growth and historical ranges of positive real interest rates is an indication that this artificial calm won't last (especially after Trump's unprecedented and arguably misguided pro-cyclical policies) and the Fed will be at a loss to respond to the next downturn
LFPzen (The Other Washington)
What the anecdote from Biscuit Head suggests is that employment is transitioning from a buyer's (employer) to a seller's (employee) market. This is long overdue and may actually result in employers training new employees instead of demanding a perfect fit at hire. Employers have continually broken long-standing compacts with US workers by eliminating defined benefit pension plans, offshoring work, substituting multiple part-time jobs for what were previously full-time positions in order to avoid paying benefits, and by not being willing to provide training to potential new hires that may not meet every "requirement."
Tim Phillips (Hollywood, Florida)
Low inflation helps people that are retired on fixed incomes, and there are many of them with many more on the way. This fantastic employment rate is just propaganda. Many people aren’t counted and many jobs are low wage. I read these articles and it’s like the Fed is perplexed, which is just more propaganda. They would have us believing that we have entered into some kind of twilight zone, where the old rules don’t apply. How can it be that most people have good paying jobs yet inflation is low, they say, and oh how scary. I would like an honest investigation into how an article like this is published in the New York Times, that would really be interesting.
Dap (Pasadena, CA)
@Tim Phillips One key issue for retired people is that the core inflation index does not include the higher health care costs for seniors, which are actually increasing much faster than the core inflation. The core inflation index, if applied for retired persons (seniors) is completely inadequate to measure the real inflation for them.
William (Massachusetts)
The economy is great if you are a millionaire with thousands of shares in other millionaires businesses.
me (somewhere)
If history is any measure, and surely it is, the proof is in the pudding. Economics is definitely dismal, but not a science. Throughout America's history we have had devastating recessions and depressions. Each time, millions of life's have been permanently altered. Many consider these boom bust cycles natural byproducts of doing business. To me, they are living proof humans aren't as smart as they think they are and are twice as greedy. Get ready. This next one is going to be a doozy.
John (NYC)
Low inflation? In whose Universe is this a reality? In the world of the pin-head elites who run the Fed and the government I suppose it's logical they would think this. That's the Universe they reside within isn't it? They are totally divorced from the world of average everyday citizens, where monthly rents, food, all the basic's in life, continue to ratchet upwards. Inflation is self-evident to any and all who walk down the aisle in a grocery store; or who may look longingly at that home they cannot afford. But of course those ensconced in a world of privilege wouldn't have a clue about this, would they? And they represent our leadership caste? No wonder things are as they are. So it goes... John~ American Net'Zen
Mark (CT)
Everything seems so rosy because we are not discussing debt (auto, credit card, college loans, real estate and unfunded pension liabilities). Too many people are living the good life "check to check" and we saw evidence of this in Food Panty lines after one week of the government shutdown. I feel we (as a country) have learned little since '08.
Avirab (NY)
This article didn't make much sense to me (I've no training in economics,but this isn't an academic journal): "business is brisk..they seek to attract..staff. Yet they haven’t raised prices" If business is brisk of course they need more staff& they should be making more profit if there's more business; obviously salary for extra staff should be less than the amount brought in by that staff. If more business causes a loss, there's something very wrong with their business model. Let them not allow in extra customers if having too many causes them to lose money! :) & paying salaries to the previously-unhireable reduces the buden on social services ie on tax-money & increases the amount of consumers, surely that's good for businesses. "Prime-age workers are hanging on to their positions for unexpected source of new employees" WHAT ??? "Ms. Roy & her fellow restaurateurs.. tough choices..can’t charge enough to cover.. higher wages, because their competitors are holding prices fairly steady." Well, If no-one needs to raise prices, they shouldn't. If all need to raise prices, then they will all do so, including all competitors, so what's the problem? "That leads to understaffing, and has caused some owners to give up the game altogether."... WHAT!?. "Modest price increases brighten .. economic .. by allowing wages to rise without crushing profits." But if prices rise (by design)the same amount as wages, the increased wages accomplish nothing for consumers!!
gc (chicago)
There is something worrisome with these rosy numbers.... is it true that if you work one day a week you are considered "employed"? if so, that makes the "unemployment"rate look for "rosy" Is it true the only other way to count the unemployed is if they are collecting unemployment? Is it true these jobs are minimum wage or less? this all stinks to high heaven..... give it 2-3 months and we will see an "adjustment" I am sure
M Swift (New Jersey)
@gc -- Yes, once you've exhausted your unemployment benefits you are no longer counted as "unemployed". So those figures don't actually show the real # of people who are not working.
George (Neptune nj)
Who has faith in the Economy. Look at the pattern. It is my belief the numbers are being manipulated food prices are like medication skyrocketing out of the stratosphere. The Economic bargain is not in America any more. 1. There's no more affordable homes left on the market unless you go to a remote part of the country then you run into other problems. 2. People that are struggling are shouldering more of their copayments, and medical bills due to the systematic rape and theft by Insurance company. 3. Our nation is tearing it's self apartment from within. It appears there are two laws one for the poor, and one for the Rich. 4. The Economy will most probably collapse looking at very specific indicators, and markers, I can't believe people just don't see it coming. ... 5. Donald Trump will start a war rather than get impeach, listen to what he says but watch what he does. China has gotten away with Trillions including future money they will earn from America theft. Trump is very weak with china.... Unless he is seeking earmarks on his products which could be runned through his immense behemoth sized shell companies and subsidiaries.
A. Grundman (NYC)
Obviously President Trump is to blame. For what and how isn't exactly clear, but that, of course, doesn't matter. On style, Trump is evil incarnate per definition. On substance, quirky and reprehensible as he is, he might yet prove to be one of the most important Presidents ever. Drives you nuts, doesn't it?
mungomunro (Maine)
The US president has lied over 10,000 times and his administration openly ignores laws and social norms. Why should we believe anything this government tells us?
Daphne (Petaluma, CA)
In some areas of the country, undocumented workers keep restaurant salaries low and therefore, prices for meals remain stable.
JJ Gross (Jeruslem)
Rather predictable fo the NY Times to grope, grasp, hunt , fish and peck to turn sweet lemonade into sour lemons if that will help remove the sheen for a glorious Trump-generated economy. If Obama were president, the Times would be running banner headlines praising employers are hiring ex-cons and giving them the hope for a crime free future. Not so under Trump. Doom and gloom -- employers are hiring ex-cons, terrible,tsk tsk, mutter mutter. But this sort of reporting will do no good as it only plays well in the echo chamber. And one senses that the echo chamber is rapidly emptying.
HL (Arizona)
Debt service required for education and housing is killing demand that would normally inflate the cost of goods and services. Most US companies have outsourced sales services to their customers who are performing these services for free. They aren't free.
WGM (Los Angeles)
More moribund metrics. The real cost of housing education and healthcare has exploded into the stratosphere. Why is it that in the NYT, the comments are always exponentially more educational than the articles themselves? In all fairness, there is some unintended educational value in this article. The major take away being that the old standards for the measurement and assessment of American economic health are no longer efficacious or applicable for the 99%.
Oh please (minneapolis, mn)
Essentials like housing, health care, child care and college tuition are rising quickly. I think there should be an additional CPI that measures the inflation of essentials. Include food, housing, transportation, health care, child care, college education, a modest amount of clothing, gasoline and utilities. Exclude travel, electronic gadgets of all kinds, alcohol, fancy clothing, yachts, restaurants, entertainment, etc. This might explain why people feel so pressed even though official CPI is low.
Neptune (Pensacola FL)
Stop trashing the currency and kidding our selves that we get pay increases by continuing with a policy of positive inflation. I have been though a number of high inflation periods getting two or more pay increases in a year and at best ones financial situation stays the same. Yes, not everyone looses. people with loans pay them back with cheapened currency and so the lender looses. Not a fair game in my book. Real gains only come about through improved efficiency and technical innovation and not by a bunch of bankers trashing the currency. In my view the Feds number one job is to make sure that the currency stays stable and not to meddle with the economy. There are plenty politicians doing that for us!
Maggie (NC)
I live in Asheville and what you half describe at Biscuit Head is not an accurate reflection of the economy here at all. The unemployment rate may be 3.3% but as a tourist economy rstaurants and hotels pay slave wages with no job security and few benefits while real estate inflation means housing shortages and unaffordable rent. An out of state hotel industry passes on the costs of subsidized housing, healthcare and infrastructure to the local tax payers whose taxes have risen steadily and living costs have risen steadily. Yes, sucessful businesses like Biscuit Head are protecting their profit margins and passing the inflationary costs onto the rest of us when they don’t pay their worker a living wage. It’s shameful.
highway (Wisconsin)
I wonder how much the accuracy of estimating the available workforce is tainted by the presence of millions of undocumented workers who fill millions of jobs in the agriculture and service industries. If unemployment is measured as 2% of X, what is "X?" I assume the Fed has a way of calculating this, but with what degree of accuracy?
Dink Singer (Hartford, CT)
@highway The Fed does not calculate labor force statistics. That job belongs to the Bureau of Labor Statistics (BLS) within the Department of Labor assisted by the Census Bureau within the Department of Commerce. The information is gathered by Census workers interviewing one member from a sample of 60,000 households which include about 110,000 individuals. This is a huge sample compared to the samples used for opinion polling. For example Gallup interviews about 1,000 people to determine that 42% of Americans approve of the way Trump is doing his job. Individuals who are not permitted to work due to their status are included in the sample and it is made clear to them that answering the questions will not put them at risk. X is the labor force. It consists of all persons age 16 or older who either have a job (are employed) or in the four weeks prior to the survey actively sought work (are unemployed). It does not take much activity to be counted as unemployed. Someone who asked a friend or relative "Are they hiring where you work?" is considered unemployed even it the answer was yes and they took no other action. According to the BLS "the chances are 90 out of 100 that the monthly estimate of unemployment from the sample is within about 300,000 of the figure obtainable from a total census. ... the possible error resulting from sampling is not large enough to distort the total unemployment picture." For more information see:
John (LINY)
I’m fortunate enough to have stuff that I bought and held on to over the years. It’s good thing that I bought them when I did. Because I sure couldn’t buy them today. A house cost twice my salary in 1976 now it’s 6 times college sometimes cost thousands, now hundreds of thousands. And the market was 1500. And bonds were competitive. And WHO needs inflation? No one that I know, but maybe the wealthy benefit by having all of their stuff increase in value as they attain yet more to add to their pile. As I have on a small scale. I don’t see my kid being able to have those opportunities.
Diogenes (Naples Florida)
Obama's second year in office, (His first year was recession-plagued) the economic growth rate was 1.6%. His last year in office, the economic growth rate was 1.6%. In no year of his administration was growth as high as 3%. It is the only 8 year period in US history with growth this low. There was no economic recovery. In the two years Trump has been in office, the economic growth rate has never been as low as 3%. The entire economic recovery has been his doing. Like it or not, his policies, and only his policies, have been the fuel for our economic emergence from the Great Recession. All the talk about "The Obama Economic Recovery" is just a fairy tale.
John (MA)
@Diogenes Trump's economy is hardly different from Obama's. What's more, Trump inherited a good economy, Obama inherited the worst economy in history save for the Depression. And we all know we got out of the Depression thanks to WWII. The current uptick in growth is also part of the economic sugar high that happens with every GOP president...massive and unsustainable tax cuts paired with increased spending. It's always inevitably followed by economic misery.
Diogenes (Naples Florida)
@John Obama's economy was a disaster. His sky-high unemployment was masked by misleading statistics; Trump has the lowest black, Hispanic, and women's unemployment in US history. Obama's last year in office, economic growth was 1.6%, as bad as his second. You ought to look outside Mass, land of Warren-esque fairy tales, at the rest of America. Our middle-class was devastated. Now it's recovering.
Dink Singer (Hartford, CT)
@John The Great Depression consisted of two recessions. The first began in August 1929 and ended in March 1933, which by coincidence was the month FDR became president. The U.S. then experienced 50 months of expansion, with GDP growth of 10.8%, 8.9% and 12.9% in '34, '35, and '36. It was FDR's decision to move towards the balanced budget he had promised as a candidate in 1932 that caused the second recession from May 1937 to June 1938. It can be said that World War II ended that one. If the current expansion continues through July, it will be the longest in American history.
Richard (Palm City)
This article doesn’t apply to my town. Prices are constantly going up and I dread seeing a new menu because it means more price increases.
Green Tea (Out There)
Inflation hasn't disappeared; it's been statisticked into invisibility to prevent the wealthy from having to pay more taxes to fund cost of living increases for SS and other retirement and disability programs. Everything I buy: food, clothes, entertainment, costs 50% more than it did 10 years ago, but those things are now excluded from "the average basket of consumer goods," theoretically because they're too "volatile." Of course they're only volatile in an upwards direction, but what the hey??? (I also love the attitude of the restaurateur in this article: 'Hey, we're only going to pay starvation wages so we have to hire anyone with a pulse who's willing to work for so little.' I'm sure that leads to a great experience for her customers.) Anyway, after watching how the government/media symbiosis operates for many years I expect local papers all over the country are printing articles this week quoting local business people marveling at how low inflation has been, followed by next week's announcement by the Social Security Administration that there will be no cost of living increase this year.
Progers9 (Brooklyn)
I believe the Trump corporate tax cut is playing a major role in holding wages and inflation at bay. The tax cut has allowed business to maintain prices and still make a profit even though their labor costs have risen. Ironically, given the budget deficit the tax cut created you would think it would cause an inflationary pressure. The rest of the world doesn't seem to be too concerned and gobbled up our debt anyway at a low interest rate.
Scott B (St. Petersburg FL)
Ms. Smialek brings up a super important point. I think she fails to pound home just how close we are to the abyss. Sure, the Fed is always trying to keep inflation cooking at moderate levels. A little inflation we can manage. The alternative -- deflation-- we don't really have tools to address. What do consumers do when their dollars will be worth more tomorrow than they are worth today? They stop spending. The more they stop spending, the more the economy slows, the more deflation -- you get it. Death spiral. The last time we faced this in a small way was the subprime collapse. In various ways, central banks pumped over $10 trillion into the world economy to restore its pulse. Fully blown deflation last occurred during the Great Depression where, despite all of FDR's bold efforts, it took WWII to rid ourselves of deflation. If we begin to tilt toward recession, which is how every other economic expansion has ended -- and this expansion will become our longest EVER next month-- what does the Fed do? Face the inevitable and let this expansion die of natural causes? Or do everything possible to keep the expansion going so as to prevent a recessionary black hole of deflation? Trump wants to do everything to pump up the economy on the grounds that is is his signature achievement. I doubt he knows why he is right. In light of the possible alternative -- a deflationary black hole that could grow unchecked until it swallowed the world economy-- what would you do?
Ken Morris (Connecticut)
If you think 'the economy' is synonymous with 'the stock markets', then the economy is doing just fine. It's a different story if you measure the economy by how well ordinary Americans are faring.
Helena Sidney (Berlin, Germany)
Restauranteurs and other business owners don‘t raise prices because wealth disparity is hollowing out the market for practically everything. The recent wage increases cannot overnight make up for years of depressed wages.
Richo (Australia)
The tariffs are all about creating price inflation.
Rethinking (LandOfUnsteadyHabits)
@Richo That's absolutely one of the results. But Trump isn't imposing them for that reason -> he neither understands their impact, nor would he care were it explained. His reason is simply his psychological need to 'crush' all enemies (defined, by him, as 'rest of the world').
me (somewhere)
Sounds like Cersei Lannister.
Justice Holmes (Charleston)
When the statistics on homelessness and and child hunger, just to name are few, are as high as they are and workers are working more hours and making less I strongly disagree with the assessment that the economy is strong. It is an economy based on greed and worker abuse. It is not strong; it is rapacious and hollow.
Barbara Brooks (La Vernia, TX)
Of course we have inflation--just the government's perverse method of measuring is off. Rents, housing prices, tuition, medications, medical care, textbooks, home improvement, insurance, car prices and auto parts have all gone up. The CPI was invented at a time of high inflation to conceal most of the inflation. If we had an accurate measure of the true cost of goods and services, it would soon be obvious we have at least 4 - 5% inflation.
An American Expat (Europe)
I'm disappointed in the Times for not doing a good job explaining how inflation and prices (the CPI, Consumer Price Index) are measured. Exactly what is in the "basket of goods and services" used to measure the CPI? (I'm told this would be simple and quick to explain.) And are these prices a national average that includes ALL regions? (I'm told that is not the case; for example, I'm told that the CPI includes urban areas but does not include rural areas.) Clearly, most of us reading this article don't think the CPI measurement of living costs --- and the inflation measurement --- accurately reflect our real world experience. Economists do a poor job of explaining these matters to us. It often feels they keep the waters muddied on purpose. In the least, they are careless about helping us stay informed. The Times could serve us well as an advocate in the matter.
me (somewhere)
Economist are no different than meteorologist. They make a lot of money and are wrong as often as they're right.
ripple79 (virginia)
@An American Expat. the cpi is not meant to reflect any given person's experience, just the average price change of the weighted average basket of goods ( the headline rate is of urban consumers -- for a couple reasons). more dtails can be found at educate yourself!
Robert (France)
Ideology trumping data yet again. A tight labor market doesn't automatically raise wages, like pumping air into a tire. Wages are raised most when workers aren't played off one another and employers are facing what's called a union. In Germany, wages are set depending on the industry in negotiations with that industry's labor representatives, and the result is higher wages, across the board. Do any least effort to find out how many of these restaurant workers are unionized and you'll find it's none. Then do it for the rest of the economy. The same!
Andrew (Colorado Springs, CO)
In 2013 after my employer had mass layoffs, I filled out 200 job applications. A co-worker filled out 300. The consensus among potential employers seemed to be, " we can find someone who (allegedly) can do all our stuff exactly the same as the person who left". I guess I don't feel too bad about their travails at this point.
Dap (Pasadena, CA)
Low inflation is an artifact of how many items are now excluded from the core inflation calculation. Economists and the government have been very creative with the definition of inflation indices. One driver for calculating and reporting artificially low inflation is to obtain low Cost of Living Allowances. I wish those who report on inflation defined their terms more clearly.
M Cavusoglu (Istanbul)
The culprit is the income distribution. At least it is so for the US in my opinion, the issue in Europe, where income inequality is less of problem, different. As long as the incomes generated by the Us economy are not shared more "justly" and find their way into the hands of "real consumers" I am afraid each coming shock will be worse than the one before. And this is a political and social issue, the FED cannot do much about it.
Devesh (New Delhi)
Generally everyone here seems to be concerned with cost-pull inflation but the fact that rising rents and other things actually keep disposable income just the same has actually contributed a lot to low inflation. Almost constant disposable income since the last decade has lead to negligible increase in aggregate demand in the economy. Demand side factors are equally crucial when considering inflation.
BigGuy (Forest Hills)
The labor force participation rate fell from 67% to 63% during the Great Recession and has NEVER increased since. 4% of the potential labor force -- easily more than 10 million people -- remains so discouraged that they have not even tried to go back to work. All those people at the sidelines, the use of Information Technology to transform employees working for guaranteed wages and hours into independent contractors paid for tasks performed, and very weak unions have resulted in very little wage inflation.
Deja Vu (, Escondido, CA)
People are laboring under crushing personal debt. Credit card delinquencies are increasing. The Fed is looking for signs of "healthy" inflation in the wages of restaurant employees, historically regarded as entry level unskilled labor? It seems to me that the Fed's present model is working perfectly, forecasting an economic downturn that may well dwarf the 2008 debacle.
Ray (NYC)
Can we please consider that the Fed's ideal way of running a massive and globalized economy is NOT infallible? The whole idea behind so-called "controlling" inflation seems that a healthy economy will always require, by choice, a particular level of people who are hanging on the fringe, desperate, ready to be exploited, their spending power curbed. Whoever invented this "utopian" economic logic? An economy that produces the most good for the most people is always a moving target and a moving target requires evolution in thought to go along with it.
Mark McLaren (Sydney)
Can someone explain why the Fed can't just print more money to increase inflation?
Lea (San Francisco)
@Mark McLaren If, as I suspect, the root of the disjunction between employment and inflation is our extreme income inequality, then printing more money won't help. Too much of that new money will end up in too few hands, which simply don't have the capacity to circulate enough of it back into the "real economy". It's invested instead in vastly inflated and arcane financial instruments (and a limited number of hyper-inflated real estate markets around the world.)
Hugh (Connecticut)
@Mark McLaren probably because of fears of a liquidity trap
KH (Seattle)
Looks like we will repeat the same pattern as the past: Republicans do things that will break the economy, but because of the delayed reaction of something so big, the Democrats will take the blame and be left to clean up the damage
Spring Summer (Seattle, WA)
A greater percentage of total income is going to the 1%'ers who do not distribute their wealth throughout the economy to benefit the rest of us. And, with regard to prices, anyone who knows the price of various goods and services knows what you are getting now is not the quality that it used to, shoes, household goods, cars, and even services. The quality is simply not there or you pay substantially more.
Lea (San Francisco)
@Spring Summer Yes, it's occurred to me too that income inequality is at the root of the low inflation + "full" employment combo that's so puzzling to folks at the Fed. Also, it's occurred to me that the unemployment numbers are way way off because underemployment is being properly factored in.
Gary Valan (Oakland, CA)
Dear Jerome Powell, please hire me as an outside advisor and I'll help you with this issue, "A major goal is determining what is reining in price gains and what can drive inflation back to the Fed’s target in a sustainable way." I won't demand what this Kobach guy is asking with a 10 point demand to be the next Czar something or other to keep those pesky immigrants and asylum seekers out. When you have millions of McJobs but call them "Gigs," and pretend they pay well, you and the companies that cause this are mistaken. The people doing these McJobs are no longer high school kids doing a summer job while waiting to start college but full time former employees who had good jobs, raised a middle class family now relegated to doing these garbage jobs. Then the college students who get out with a massive college debt end up doing these McJobs because there are not a lot of high paying jobs in this country. Figure out a way to kill the Gilded Age II and you might get a robust economy with growth all around and inflation to match. Then you can do your thing to kill it...
Jack (Las Vegas)
Economists and policy makers used to dream, pray, and hope for low inflation and full employment. Now that we have it all they seem to not want it. Do they know what they are doing or talking about? There are only one kind of economists, Voodoo.
Clarence (Singapore)
"“It used to be that you’d look at résumés, and some things were an automatic disqualifier,” Ms. Roy said. “Now there’s really no disqualifier. Anyone who comes in, we’ll interview them.”" How is reduced discrimination and a more egalitarian society a troubling thing? If it's because of reduced discrimination that results in a lower price isn't this good?
Mike (Jamestown)
Ponzi schemes always collapse and there is nothing any "expert" can do about it.
Dan F (Minneapolis, MN)
Who says that 2% is the right target? Planet Money interviewed the New Zealander who first implemented it, who said 2% was plucked out of the air.
J Chaffee (Mexico)
@Dan F There is nothing scarier for economic systems (that is, systems of distributing goods and services) reliant on debt than deflation. Not even hyperinflation.
Richard Schumacher (The Benighted States of America)
5% was once held to be the lowest feasible unemployment rate. Now we've been at 3+% for some time. Perhaps something fundamental *has* changed. Perhaps 2% inflation is no longer the optimal rate.
bacrofton (Cleveland, OH)
I work for Amazon. We had a wage increase and then lowered prices in our Whole Foods markets. Guess what? Management is stressing to lower labor because we are NOT making profits. And hiring....not bottom of the barrel, but we are not hiring the same caliber as we once did.
Kristin (Portland, OR)
I make $8,000 a year more than I did in 2012, for what is essentially the same job (but with a different employer). But I'm also paying $6,000 more a year in rent. It would be even more, but I moved from a two bedroom to a one bedroom and now have a kitchen 1/3 the size of my old one. When you combine the rent increase with trying to now save a little for retirement, my increase in pay over 2012 is completely gone. And I know from talking to others that I am hardly alone. Increasing rent is gobbling up nearly every extra cent we might earn. No wonder businesses aren't raising prices - they know that for all intents and purposes, people aren't actually ending up with any more in their pocket at all.
gratis (Colorado)
@Kristin I am sorry, but you demonstrate the problem. The problem is that employers do not pay you more because they do not have to. Why should they? No reason. Used to be that unions helped drive wages up, but our society has decided it would rather have the employers pay society less in wages than endure the bane of unions and socialism. Ain't freedom great? (BTW, socio-economic mobility is 2-3 times greater in those mommy Democratic Socialist governments, never mind the single payer healthcare, free high quality education, state assisted child care, 4 weeks paid vacation by law for all workers, retirement, as well as tax surpluses almost every year. And being named 'Happiest countries on Earth'. Stuff no real American ever wants)
Frank (Menomonie, WI)
I see a lot of people who are earning decently for the area (rural west-central Wisconsin) but who are still cash-poor at the end of the pay period. I'm not being glib when I say this, but people are paying way more than they used to for their phone service and cable service. People are easily paying $350/mo for the two combined, and that takes a bite out of their discretionary income.
K Tollers (WI)
@Frank considering those two items are actually overpriced because of the lack of competition (given the government sanctioned oligopoly that is tele-communications industry) why do see your neighbors spending money on a utility (phone service) and entertainment (cable) as causing their own problems? The real question should be, why shouldn’t everyone have enough discretionary income to afford these things - they’re hardly high end luxury items.
Jean louis LONNE (France)
@Frank drop the cable and get a ROKU /netflix/amazon subscription and save 100 dollars a month.
RSSF (San Francisco)
The fundamental problem is that inflation is actually lower than how the Fed measures it -- Greenspan himself has said so. So, the interest rates while historically low are still not low enough to get inflation to perk up. However, we are in a Goldilocks economy of relatively strong GDP growth, low unemployment and low inflation, and should keep the party going for a while.
Unsound (Los Angeles)
First, there are problems with how inflation is measured. Food and energy are excluded, even though they are significant parts of people's budgets. And rent is sampled from the same people who renew their leases at lower rents than new renters. Obviously rents have jumped significantly in the past decade despite low inflation numbers. So if you're not calculating inflation in a reasonable way, you don't have good numbers to rely on. Second, Trump's tariffs will definitely and artificially bump up prices. So perhaps the fed should be careful for what they wish for.
Uncle Marty (San Mateo, CA)
Inflation measures are relatively low, but everything else is really expensive - housing, groceries, gas, education, child care, etc. Good to know biscuit prices are stable - meanwhile the rest of the country is stretched beyond their incomes. This is what worsening income inequality looks like - convenient low inflation for the owners of capital (the wealthy) but oppressively high costs for the rest of society.
Mike (Jamestown)
@Uncle Marty most of the country is wasting. That's the problem.
MSV (Columbus, IN)
Higher wages come via higher prices or a larger share of the profits. Appears that consumers for dining out are not willing to pay higher prices. Then purchasing power remains the same. So instead of wages being eaten away by inflation the wage earners can actually purchase a larger quantity of goods and services.
Michael (MN)
I’m curious how the tariffs are affecting the economy. Aren’t they kind of doing a little bit what raising interest rates would do? Maybe I’m wrong here, but trump implementing tariffs could be slowing the economy as well. However on the other side, once a downturn happens couldn’t the relaxation of tariffs be a sort of economic easing like the reduction of interest rates? So in a way isn’t trump doing essentially (on a smaller scale) what he is railing the fed not to do? So if Trump really wanted to fuel the economy more...get rid of the tariffs, no?
theirllbelight (CO)
The stock market should be factored into inflation, too, but it isn't. Housing, real estate, education, and health care are not sufficiently factored. True inflation is more like 4%
Craig Freedman (Sydney)
@theirllbelight Why don't you carefully examine how the consumer price index is actually constructed. It represents an average basket of goods and services consumers buy. The basket is determined by statistical surveys of consumer buying habits. The very title of the index should tell you why the stock market is not factored into the determination of an average consumer's basket of goods and services. Is your claim that certain items are not sufficiently factored based just on your own personal experience or something more? As for those who keep claiming that the price of food and energy are not included, they should realize that there are two series, one with and one excluding these two elements. The price of food and energy tend to be volatile, prone to shooting up or down over the short run. So both series are required if useful analysis of price changes are to be done. Lastly, the commonly quoted inflation (CPI) figure is nationwide. That does not mean it is strictly applicable to the region in which you live. There are regional estimations if you are interested and don't simply want to complain.
The measure of inflation has no basis for any reasonable reality - whatever it measures is not relevant to most people.
Frank (Palo Alto, CA)
It is rather curious that the inflation rate is interpreted to be only 2%. Of course, there is no exact science for how to calculate it, but where I live (California) I see that restaurants where entrees were $15 two years ago are now $19. A 4 bedroom house in Santa Cruz which rented for $4000/mo. three years ago now rents for $5,600. The car wash place which charged $12 four years ago now charges $19. A few years ago fruit prices under a dollar a pound were fairly common, but are extremely rare now. Health care and college costs are increasing in the high single digits each year. The skyrocketing construction costs and home prices in the Bay Area are already well documented. These are all costs which affect real people. I understand that improving technology generally makes tech products become a better deal each year, but I really don't see that it nullifies all of the other price increases.
Chuck (CA)
@Frank Respectfully... anyone living in Palo Alto (one of the most expensive communities in the bay area) is not going to get much sympathy with this rant of yours. I be more impressed if you actually were worried about the plight of homeless in the bay area... a demographic that Palo Alto residents have pushed their city to forcefully eject from the city limits by force.
Mark (Berkeley, CA)
@Frank I think urban California is an exception to the rule nationwide.
Judith (Hume)
@Frank I'm seeing the same thing in Dallas, TX. I got a text the other day from a friend who said he always buys lunch for his cleaning lady. He gives her $20, which she usually spends at Chipotle, where she picks up something for him as well. They order pretty much the same thing every time. A few years ago, when he started doing this, she would get $5.00 change. Then $3.00. Then $2.00. Now none. He noted, "It’s a 30% increase in prices since we started." I've noticed the same thing, and also I see the price of fruits and vegetables going up dramatically. So 2% inflation? Dunno where they come up with that figure.
Uly (New Jersey)
I do not want to be elite and arrogant. Jersey appears doing money well comparable to the rest of the Union. Jersey shore, its micro breweries, wineries, Bell Labs, Amazon fulfillment warehouses, corporate pharmaceutical headquarters, beautiful county roads, Bon Jovi, Bruce Springsteen, Stone Pony at Asbury Park, excellent public schools, good public transportation and Manhattan across the Hudson River makes Jersey a bit desirable. Average Jersey folks including documented and undocumented immigrants fair well. The latter group provides the economic services of the state.
maqroll (north Florida)
The real unemployment rate is about 7%. This includes as unemployed persons who are underemployed or discouraged and not looking for work. Depending on their circumstances, lots of these people may still be finding their way back into the workforce, as in the applicants with criminal records at the Asheville restaurant cited in the article. However, the present real unemployment rate is about as low as it's been over the past 25 yrs. If it's not going any lower, then the question remains, why no inflation? Maybe it's because we've just gotten to this level of employment. The real unemployment rate was 2 pts higher just 2 yrs ago. Maybe inflation is just around the corner. It may just take longer to make itself felt due to the wage deflationary impacts of imports and technology.
Keith (Brooklyn)
It's heartening to read these comments and see eloquent and data-supported arguments on every topic that crossed my mind reading this article. Stagnating wages, miscalculated unemployment, ignored underemployment, and death-by-a-thousand-cuts to worker's bargaining power have lead us to a situation where the only people experiencing the recovery were never in financial jeopardy to begin with. As for what to do with it, in my layman opinion the first step is to radically reevaluate how employment statistics are defined and calculated, I imagine a more accurate employment rate might make some of the old formulas a stronger fit. After that the Fed should consider their sources of information: they should work harder to understand the concerns of the non-capitalist classes and perhaps even introduce qualitative measures. People aren't stupid. They're scared, and acting scared, because of real systemic financial issues. The Fed can and should try and understand this, even if many of the causes come from governmental levers (federal statues and court decisions) they cannot touch. Consider hiring a psychologist or an anthropologist, because as these comments show it's not at all confusing why people are acting financially defensive. If the Fed wants to understand this - and I honestly believe they do and will eventually get there - they need to expand both who they speak to and the tools they use to understand what those people are telling them.
gratis (Colorado)
Pretty simple to me. The error is in the first paragraph. It is not that the combination is not raising prices, but rather the combination is not raising wages. The wage gains that are showing up are just the mandated increases in the minimum wage due to local/state laws. Those increases are not impacting the economy because the are merely replacing the money those workers got from food stamps and medicaid. There is no real increase in spending for most Americans. And Americans who are above the minimum wage are just getting increases to match inflation. A "good raise" may be 10% above the inflation rate, or maybe 2.2% instead of 2.0%. 0.2% raise above inflation. What, $5 a week? The economic analysis here seems blinded by its own self proclaimed brilliance.
William Thornhill (Carlisle MA)
When economists talk about a 2% inflation target, they are talking about consumer prices. Perversely, the impact of dirt-cheap money has not, as conventional wisdom would expect, flowed to consumer demand and hence consumer prices. Rather, the effect of 10 years of near-zero interest rates has been to send asset values to stratospheric levels, thus showering benefits on...guess who... the super-rich. The 2008 financial crisis should have been seen as a solution to the superbubble that caused it. Unfortunately, both the Bush and Obama administrations set a primary goal of restoring the bubble. The policy was successful. Asset values are back to the stratosphere. No matter that the 99% is stuck in the muck.
Nicole (Seattle)
Every time I read one of these stories I wonder why I'm the only person experiencing inflation. Literally everything I buy is more expensive these days, and not 2% more than last year more expensive. Oh wait, it's not just me! The Fed Reserve (FRED) shows consumer prices are up around 5%!
Frued (North Carolina)
The only thing inflating is the cost of government...we don't see it because they borrow the deficits rather than pass the expenses on to consumers( taxpayers).Someday they will have to stop borrowing so much and we will then see how much our taxes inflate. Watch out as this won't end well.
Erich (Vancouver Washington)
You forgot the stock market housing market bond market.
Illuminati (USA)
When the government started including service industries into calculating GNP (now GDP) in the Reagan era, you knew the fix/ smoke screen was coming on how well hyper-capitalism was actually performing. Our children’s lives are becoming materially less secure. Period.
Brad (Oregon)
Lots of insightful comments. I was just in California where gasoline prices are well over $4/gallon. Not included in inflation calculation. Housing prices on the west coast are through the roof. Not included in inflation calculation. Consumer debt and default is skyrocketing. Why? Rose colored glasses anyone?
Chuck (CA)
@Brad Prices for Gas in California have hovered around $4+/- for years now. So if that is your metric.. sorry... no inflation.. just normal market fluctuations due to the price of oil moving all the time. Housing in California is once again becoming a speculative market.. so yeah.. prices are surging. Last time they surged.. they also collapsed by almost 50% during the great recession too. Consumer debt has always been a problem in this country. Too many people deliberately live beyond their means. None of this is part of CPI calculations... precisely because it does not directly apply to CPI. Now let's talk about Oregon.. one of the least friendly states financially for retirees in the western US. Worse then California.. which I did not think was possible.
Chris Morris (Idaho)
Trump has successfully checked the Fed to his will. The Fed won't act in any way counter to Trump out of fear of what his reaction might be. The GOP, and even the Dems in cong. also seem paralyzed by fear of Trump. Trump has all these people terrified. Full discloser; me too.
Chuck (CA)
@Chris Morris I disagree. Trump has absolutely no sway with the FED.. which is what gets him so worked up about the FED at times. They are not raising interest rates, because inflation is staying within target parameters, and unemployment remains low and GDP remains positive.
Chris Morris (Idaho)
@Chuck You are right on the inflation, GDP, Employment, but now is the time to flick some water on the fire. The money party is in full swing and when it blows up they need some room to respond. I think Trump brow-beat them into standing pat. Many people fear Trump apparently.
ES (Philadelphia)
There is something ridiculous about worrying about an inflation rate that is .4 below expectations! Low inflation is a good thing for the millions of Americans on fixed incomes, or those who are increasing wages at a low rate. As long as there is not negative inflation, or deflation, this is really a good thing. I remember too vividly the days of high inflation - they were a nightmare. Let's step back and enjoy a strong economy with low inflation! Hurray!
joel bergsman (st leonard md)
The gig economy has broken the stiffness of the labor supply. The folks who stopped looking for work in the old structure are now ooozing into the labor market and are one of the main reasons that the old "Philips Curve" is either dead or has moved so far toward the axes that it's irrelevant. If you're a capitalist or a consumer, this is a marvelous phenomenon! Output keeps increasing, prices don't go up, stock prices keep rising (in spite of huge risks; just think of the drying up of Chinese net savings plus a Chinese government that weaponizes all the US Treasury paper it owns!), the previously unemployable are getting jobs, and everybody but the Uber drivers are happy (and maybe also the economists who can't figure it out). Globalization has squeezed monopoly rents out of labor's share, and thinned out some of the capitalists' share too. It may or may not be a better world, but it's sure as heck a different one.
Striving (CO)
Why does no-one consider the extreme disparity of wealth that has been developing as the reason that inflation has stayed low?
Tom (Reality)
@Striving - because it's far easier for people to just keep their heads down and mouths shut. The "proud working man" is a coward, the rich know it.
Chuck (CA)
@Striving Because it has nothing to do with driving or squelching inflation. The wealthy are not impacted in any way by inflation... even though they can and will whine about it when picking out their new $20M yacht. Wealth inequality is a negative measure of the overall health of our society... but it is not an economic indicator of inflation by any means.
richard wiesner (oregon)
We have tried this trickle down theory more than once. Give breaks to the monied with the expectation that will spur investments that intern produce conditions that lightly rain down upon the masses. Enough with the tax breaks to the wealthy that impoverish the treasury and balloon the debt. Enough with union busting, jobs with bare bones benefits, temp gig economies and concentration of wealth to the already sumpuously wealthy. Maybe it's time for a little trickle up.
Joseph B (Stanford)
Wait till tariffs come into effect. Consumers will pay for this.
David (Ann Arbor)
It's because consumers are spending all their money on rent or mortgages. Businesses are trying not to raise prices because they know consumers can't afford to pay more, and instead will simply stay home or shop on Amazon.
Char (New York)
One of the factors leading to the Great Depression was automation of farm processes. A glut of food products flooded the market. The result was record crop yields, low prices, and huge farmer debt defaults... at the same time bread lines were forming. I believe that we are in "one" of an economic one-two punch that may be devastating. First, the gig economy (a comfortable situation for so many young workers who don't yet realize their need for employee benefits) means that more and more companies are able to compress labor costs because they are not paying benefit costs. Temporarily, prices remain low while labor costs are low. But just like the economically crippling automation of the late 1920s, we are on the brink of a massive wave of automation that will result in a massive real wage drop - the "two" punch. Prices may stay low, but the purchasing power of consumers will be lower yet. I fear that we are now in the economic equivalent of Wile E. Coyote having run off the cliff with legs pumping just before his fall.
Chuck (CA)
@Char the gig economy effects in labor and wages is actually small in the US economy. Come back with that argument when/if it reached the scale of healthcare as a % of GDP. Healthcare costs are the single largest economic burden on the US economy.
nycptc (new york city)
If the US starts taxing investment gains the same as wages, this puzzling picture might change.
Brad (Oregon)
That would change the inflation rate? Please explain.
Chuck (CA)
@nycptc It will have not effect on inflation, wages, or employment rates. What it will do however is drive investments into tax free categories (like municipal bonds and mutual funds). So be careful what you wish for.
RonRich (Chicago)
Looking for inflation? Check out S&P, Dow, NASDAQ.
stephanie (San Francisco)
Hi - First time caller, but things we want to buy like housing and healthcare are increasing in price quite rapidly. I understand the economic principles being discussed here and low inflation is a concern, but it's almost tone deaf to the real story is here. Deflation on consumer goods will be a double whammy because we'll be hoarding cash to afford housing security, not because prices will be "lower tomorrow" on items in your typical market basket.
Mimi (Baltimore and Manhattan)
Where is this "low inflation" baloney coming from? Checked the price of gas recently? Energy? Food? Housing? Health care? Prescription drugs? Anything made with steel like autos? College? With Trump's tariffs hitting products from China, there's low inflation?
trblmkr (NYC)
US CPI and PPI both peaked in July of last year. The difficult year on year "comps" plus the inflationary effect of trump's tariff tax plus higher oil due to trump's threats against Venezuela and Iran could lead to some surprisingly high inflation numbers from July.
UrRn (NJ)
Is it possible that the Fed ( or anybody for that matter) doesn’t understand what drives inflation other than price push? ( like oil in the ‘70s). The Modern Monetary people point out that nobody who matters seems to even understand the deficit, or purpose of taxation, so would they understand inflation?
Kevin (New York, NY)
For decades inflation has far outpaced wage growth. Perhaps the recent growth in wages with little impact on inflation represents the relationship between the two values not breaking down, but in fact re-balancing.
Areader (Huntsville)
I do not know how they measure inflation, but my costs have gone up more than 2 % this last year.
TheRestOfAmerica (Florida)
@Areader From what I understand the formula they use it is figured if steak goes up you switch to hamburger. I'm at hamburger, now what?
What the hey (USA)
@Areader Yep. I think the government is now using chained CPI figuring where it assumes people buy cheaper substitutes for what what they used to buy, more flip flops and biscuits anyone?
Chuck (CA)
@What the hey The difference between CPI and C-CPI is actually small though. A few tenths of a percent at most. The government will use C-CPI when it wants to control payout of entitlement costs (like COLA for Social Security), and will use CPI when it does not face a financial obligation.
Rob (Portland)
"Despite higher wages" where?? I haven't seen any. Wages have not tracked growth for over a decade. The rich are squeezing the economy like a limp fruit, hoping a little more juice will come out before it bursts all the fleshy goodness all over the plate of the economy.
Aaron (US)
I am consistently baffled as to why well educated economists say, with straight faces, things like: “...inflation as a lubricant on the wheels of the labor market: It keeps wages chugging along.“ Translation: “We can pay you more because we can charge you more for everything.” Who does this relationship benefit? Employers, owners, the gentry, of course, not workers. Capitalist delusion. Contemporary peasantry. This formulation assumes us all to be chumps. Are we? Further along in this article about funnymoney policy is another clarifying quote as an argument for inflation: [if future lower prices are expected] “...consumers hoard their cash, knowing that prices will be lower tomorrow.” Again, yes, that makes sense, again, if you are a member of the gentry. After all, the sooner the owners/employers/gentry class can get workers to give them back the money they (the gentry) have paid them, the more money said gentry has. To do what with? Grow their business you say? Yes, ideally, maybe if they’re satisfied with their excess cash, so they can pay more workers who can then do more work to pay more for goods in order to earn, yet again, the gentry even more. Does any of this help workers? No, its perpetual servitude, but its a good enough illusion that I expect many to argue it does. But they have jobs? Yes, they labor, indeed. They’re occupied, what joy, and they’ll never be free under this system. Freedom is only for the rich here.
dmv (us)
Nailed it.
Joe From Boston (Massachusetts)
“To the extent that businesses have price increases, they may very well be unable to pass them on,” Robert S. Kaplan, the president of the Federal Reserve Bank of Dallas, said in an interview. “I don’t think that’s changing. If anything, it may be intensifying.” “If you’re perceived as being too expensive, people aren’t going to want to come,” Ms. Roy said. “It really is a balancing act.” Now add to those two economic factors the Trump tariffs, and the countervailing tariffs that our "trading partners" impose on US exports. If businesses can't pass on increased costs (from tariffs), and cannot increase costs because their competitors are holding down their prices (and wage expenses), the businesses will ultimately go bankrupt if the added costs are big enough. They may also go bankrupt if they lose significant amounts of business that was based on export sales. The workers will get squeezed by the increased costs of tariffs on the goods they purchase. My guess is that if the present situation continues, we get into a recession early in 2020, just in time for the pain to be widespread by the time the election rolls around. People will then be able to answer the question: "Are we winning yet?" when they go to the polls.
dee cee (lb ca)
The factors the Fed uses to measure inflation are a bit obscure and maybe not accurately reflecting increases in the cost of living. Also the labor participation rate may more accurately reflect the employment picture than the "unemployment" rate.
Chuck (CA)
@dee cee Cost of living is a very amorphous term. Different people perceive it and apply it in different ways.. hence all the crazy rhetoric about it in the comments here. Two families, living in the same neighborhood, with roughly the same incomes will have different cost of living measures... because they have different spending habits and disciplines. Measures of inflation can be debated in terms of methodology.. but it is basic math and works on a transparent calculation. People can and will argue about the calculation of course.. but that is a whole different rats nest.. as most people argue it form a self-centered point of view.
Jake (Texas)
How sad the Fed is worried that inflation is too low. Housing and Rent Inflation is not low. Other than minimum wage employees, who have seen their wages rise by double digit %, all my white collar friends receive 0-3% annual wage increases. Unless they change employers or get a big promotion. And yes, there are plenty of Latin American nationals working in just about every restaurant in Texas. What effect does that have on wages and inflation?
Joe From Boston (Massachusetts)
@Jake Conservatives all tell me that competition is a good thing, and that the free market magically fixes all the problems. Under deregulation by the Trump administration, we should be in seventh heaven, right? Have they been lying to me all this time?
Mark Browning (Houston)
There is a low "official" unemployment rate, but many jobs pay less than the manufacturing jobs of yesteryear. Also, many people have dropped out of the market all together. This might be why inflation is low, if it is.
Casual Observer (Los Angeles)
There is less wealth amongst consumers because despite the recovery since 2009, only the very wealthy have received any significant portion of the new wealth created. Most people have seen their income decrease in real value because it does not keep up with inflation. Similarly, he low interest rates extend to people's savings which do not earn dividends as great as inflation. The inequities of wealth are constraining most people's ability to buy more that just what they need to get by. Similarly, government is racking up debt just doing the regular day to day stuff. Meanwhile, the very wealthy have more money than they can use. It reflects really poor policies about how to handle new laws and policies, namely, checking to confirm that they do as intended.
Casual Observer (Los Angeles)
@Casual Observer Most people have not seen their income increase in real value because increases rarely keep up with inflation. I misstated the facts, I think.
lillyiswright (New Jersey)
Income inequality! All the gains are going to a very limited % of the economy. Workers aren't getting real wage increases, so they cannot spend more, so companies cannot raise prices.
Enri (Massachusetts)
Well that goes along with slowing down of productivity growth in the last 4 decades (the 70s were the decade that last saw inflation) and especially since 2008. China is the exception that confirm as the rule and many means of subsistence (which wages buy) have cheapened considerably. In addition, or corollary, with relative stagnation, relatively little goes into productive investment and R&D. Most profits go into financial assets (or buybacks). Not a beautiful picture; thereby the fear of recession. Basically the solution to end the last recession is what creates these conditions.
David Doney (I.O.U.S.A.)
The good news about low inflation is we might see real wage gains return to the 2015-2016 levels under Obama, which were far higher than the 2017-2018 levels under Trump. A few thoughts on why we aren't seeing real wages rise: 1. The prime age (25-54) labor force participation rate of 82.2% is still below the pre-crisis level of around 83%. With a labor force of around 160 million, that is still about 1.3 million workers outside the labor force that might return. 2. With only 6.4% of private sector workers in unions, there is little labor bargaining power. Right to work states and the increasing prevalence of non-unionized service workers have limited labor's ability to do anything about ridiculous executive pay packages. "What about me" doesn't have the force it used to. 3. We should see some stronger nominal wage increases now that so many states have increased their minimum wages. If inflation stays down, that will help move the real wage gains up to Obama levels. 4. Corporations are still allowed to divert a high percentage of their earnings to stock buybacks, which primarily benefit the top 10%, who own 82% of the stock. If they had to divert a set percentage to wage increases before paying buybacks, that would be a game-changer.
tanstaafl (Houston)
The extra printed money is inflating asset prices, which is supposed to boost spending by a 'wealth effect,' but the problem is that 1/3 of stocks are owned internationally and most of the rest are owned by the 0.1% who don't need to spend their extra wealth. This situation would be ameliorated by, ahem, spreading the wealth to middle class and poor Americans by giving some of the stocks to them--yes, the Fed should purchase the stocks outright and give them to people.
Joe (Chicago)
Ours is an economic system teetering on the edge. Once false move--another set of tariffs at the wrong time, for example--could throw the world economy in a tailspin from which it won't recover.
Nick (Brooklyn)
Our math is wrong - it's either: A) outdated B) purposely misleading to obscure the real issues of middle / lower class being left behind as corporations run away with the only growth of the last 40 years Either way - we need a realistic picture of America. When my wife and I both make close to 6 figures and are being told by our real estate agent that finding a 3BR for $1.2 isn't realistic, there's a problem.
Chuck (CA)
@Nick "When my wife and I both make close to 6 figures and are being told by our real estate agent that finding a 3BR for $1.2 isn't realistic, there's a problem". With respect.. I understand your frustration, but it has nothing to do with the FEDS inflation monitoring. Nobody forces you to live in Brooklyn, much less spend $1M plus on a home. In fact.. in markets like Brooklyn, I would argue that it is foolish to buy real estate as you are simply one recession from being under water on your mortgage. But if that is the way you go.. then you need to earn more income. "Close to 6 figures" each is not high income for where you live.
Ramesh (Texas)
If you look to parameters that have decoupled or are in the process of decoupling, the signal they carry becomes indistinguishable from noise. Looking at employment rate (~4 percent) is not longer information. The meaning of what it means to be employed has changed significantly while the technical definition may not have changed. A person working underemployed is ranked similarly to one employed gainfully. This new situation is not captured by current parameters. We need new parameters and defining them takes time and are controversial.
Patty O (deltona)
I have found I sometimes learn more from the comments than I do from the article. Great job to those explaining how economics work.
Evan (Atherton)
Try taxing businesses more to force them to raise prices to compensate. We could use the money to improve infrastructure.
Chuck (CA)
@Evan Taxation rates on businesses is indeed insanely low now under the new tax law. Republicans however will tell you that they simply have to protect small business owners (though when you look closely.. they consider $5M+ a year LLCs to be small businesses... so they are gaming the terms when business and taxes are discussed in the same sentence.
Charles Tiege (Rochester, MN)
Maybe the biggest factor holding down inflation is energy prices. Fracking and renewables are keeping a lid on fossil fuel prices. And the cost of energy is embedded in every good or service.
Alec Bowman (Santa Monica, CA)
Fiscal policy has been disregarded as a macroeconomic tool for too long. Full employment is a job guarantee.
Jonathan (Oronoque)
How about if wages go up and prices go down? I don't think too many people would find anything wrong with that!
John Griswold (Salt Lake City Utah)
@Jonathan When prices go down people tend to delay purchases to wait for lower prices, which can flip an economy into recession or even depression. When wages go up production needs to go up as well to balance purchase dollars against purchasable products. Complex systems are hard to understand, let alone control.
Jake (Texas)
@John Griswold Not me, nor many people I know: I typically wait until something I want goes on sale, then I buy it.
Thinline (Minneapolis, MN)
@Jake you just proved John Griswolds point: you sensed prices were going to go down and deferred purchase till it did. Imagine that on a macro scale: millions of buyers waiting (not-buying). The economy hiccups, businesses lower prices some more but some go bankrupt. People get fearful. Stop buying...more businesses you’ve got a crash.
Doctor No (Michigan)
Inflation has classically been defined as "too much money chasing too few goods." We don't have that now. Most people don't have enough for basic needs and are finding ways to cut back wherever they can. The people with excess spending capacity, roughly the top 10% in income, are investing (see DJIA) or spending on high end goods (see high end yacht sales.) The rest of us are waiting for another economic 2008 to show up caused by the schizophrenic tariff policy and budget deficit land mines currently in the road ahead. The employment numbers hide the underemployment statistics and labor force participation rates. Most people are scared. I don't expect inflation to show up any time soon with the major exceptions of CEO salaries, medical costs and tuition increases. Greed never has had constraints.
Laith Shehadeh (USA)
@Doctor No Easily the best comment on here. I wouldn't be surprised if QE4 hit us even harder than before.
John (Sf)
@Doctor No Why the lies keep spreading out like disease. I flation is not low. Check food gas house insurance education cost.
Lorem Ipsum (DFW, TX)
Myself, I'm saving for dear life. Major purchase? Not in this "administration."
Tom (Baltimore, MD)
What about labor force participation? It is still fairly low, which means that a lot of slack exists in the labor market. Also, the geniuses at the Fed should know that one sure fire way to juice inflation is to pump more money into the economy...
John Griswold (Salt Lake City Utah)
@Tom And yet with the trillions that the Fed pumped into the economy over the last 10 years, the trillions in deficit spending due to tax cuts and expanded govt. spending, still no inflation...hmmmm
Eddie (Silver Spring)
@John Griswold I would agree. the problem with Quantitative Easing, coupled with low interest rates and the tax cuts, the benefits went to wealthy Americans and for-profit corporations. Dividends, stock buy backs, and executive bonuses have never improved lives of working people. That is called trickle-down economics. What we need is an increase in the minimum wage, more unions, a real infrastrucure plan to rebuild roads, schools, ports, hospitals, airports, high speed trains, public tranportation, reducing student debt, and more policies that put money in workers' pockets and then we'll see inflation. Giving more money to the wealthy who alrady have everything they need is useless.
Jake (Texas)
@John Griswold The Fed is woefully out of touch with reality. What do you think would happen if the Fed deposited $1,000 in every American's bank account who, based on 2018 tax return, made less than $100K?
fafield (Northern California)
What kind of fairyland does the Fed live in? I surely wish all this news of low inflation were true in the world I live in, but it’s not. Medical insurance rates up about 10% every year as far back as I can remember. Home owners insurance up 60% over the last two years. Cost to rebuild our house, up 27% over the last two years. Gasoline at $4.25 per gallon, up from $3.00 six months ago. Go to the grocery store and buy two bags of groceries; you will be lucky to get change from your $100 bill. Federal income tax bill for 2018 was up 5% thanks to the Trump/McConnell anti-blue state “tax cut.”  Some of this fiddling (ignore anything people actually have to buy) with the definition of CPI started back in the Clinton administration. Bill decided that the ever improving price-performance of personal computers meant we had negative inflation on that category. Brilliant, this must be why Social Security benefit rates have risen by less than 5% total over the last five years.
gmg22 (VT)
@fafield This is what drives me crazy. The "basket of goods" doesn't actually include any of the household needs whose cost has skyrocketed most: housing, education, and healthcare. Re the last two in particular, if we're going to settle on being a "service economy," shouldn't we be more concerned about the unsustainable rise in the cost of these services? Yet our traditional inflation measures tell us absolutely nothing about that, or about how to rein it in. So short-sighted.
Green Tea (Out There)
@fafield The one thing that probably really hasn't gone up much is all the flimsy plastic junk on the shelves at Walmart. But since none of that is actually made in this country you can't really expect US unemployment rates to have any affect on its prices.
HHenson (Canada)
It is likely one of those situations we will not understand until we have made enough wrong predictions. My bet is that deregulation of the labor markets and relaxed pollution restrictions have lowered the cost of doing business. This is a one time shock that has led to a boost in economic growth without inflation. On the flipside, it will leave a more polluted US environment, more unequal income distribution and Trillions of dollars of debt. After the onetime growth spurt is over, the inflation growth tradeoff return, and this will be seen to be a terrible mistake. The same thing occured in the late 60s.
GUANNA (New England)
@HHenson Donny plays Candyland, he knows colors, the world plays chess or at least checkers.
San Ta (North Country)
The profit share of GDP (income approach) had more than doubled over the past 30 years or so, and the labour income share had decreased significantly over the same period. Consequently, there might not be a profit squeeze if the longer term relationships between profits and wages are considered, and wages might rise at the expense of profits rather than as a cause of inflation. As the article notes, there is now consumer resistance to price increases, as they have been conditioned to accept price stability over the years. Trends in relative shares might be a more important FED policy variable than overall prices.
GUANNA (New England)
@San Ta Where hive you seen Price stability over the years? The inflation index leave out so many volatile consumer goods the level is probably a joke. Now that the cheap imports which we were told for years helped moderate inflation are under attack. there will be inflation. With baby boomers retiring in record numbers there will also be labor shortages for at least another decade. Our low unemployment rate has nothing to do with Trump or his economics, it is entirely demographic in Nature. We also had low unemployment in the 60 a decade when they baby bust depression generation entered the workforce. That evaporated by the mid 70's when the Demographics change again. What little Trump has actually achieved came from his budget blowing deficits. Americans will soon find out if they were worth it.
San Ta (North Country)
@GUANNA: I guess if I said something derogatory about Trump, you would have hit recommend rather than reply. The article, however, deals with how the FED is trying to evaluate the numbers and make policy decisions on what they perceive is happening. Your comments are interesting, and demographic changes certainly affect labour market conditions, but the 1945-1975 period might be an aberration and they do not have anything to do with the FED or with Trump. As well, Robert Gordon, among others, has shown that the CPI underestimates inflation as new products, i.e., those whose prices fall the greatest when economies of scale are initially realized, often don't enter the CPI until well after these substantial price decreases are experienced. Moreover, it doesn't track quality improvement. As for volatile items, the CPI usually contains inflation rates with and without them. Take your pick. If you are old enough to have lived in the 1970s and 1980s, you would know what real inflation looks and feels like. The 2% inflation experienced in the recent past is trivial, but it's a "policy variable" only because the FED believes it has to convince the public, that is, the holders of US government debt, that it is serious about inflation control - but not so serious as to cause another downturn. Unfortunately, your demographic argument doesn't mention the millions of immigrants who have entered the US since 1980 and depressed labor costs and prices, or union busting actions.
Charles Tiege (Rochester, MN)
Maybe the question the Fed should ask is, Why would there be inflation? We are near the end of a long cycle of flattening of the retail delivery chain. First it was Walmart and other big boxers, now it is Amazon, eBay and every vendor you can think of on the internet. Before, shopping for price was arduous and inefficient. Now price comparison is hyper efficient. The consumer, who is responsible for about 70% of GDP, gained some control over prices paid. So there is that. Consumers still use a lot of credit, but credit card debt is still less than before the Great Recession. Young people are imprisoned in their parents' basements in student debt peonage at a time in their lives when they should be out shopping, making babies, and buying houses and durable goods. Workers have no pricing power so incomes are barely rising. Housing, which has low productivity and which can't be bought on eBay, has exceeded the lowflation trap.
Alex (Florida)
If the fed doesn't understand why this happening its because they have a fundamental lack of understanding about economic forces in general. The inflation that accompanies low unemployment is due to the increase in wages that accompanies and increase in demand for labor. More employees have more money in their hands they spend more boosting aggregate demand and raising the price level. Wages haven't grown since the 80's. Productivity gains have gone almost exclusively to shareholders rather than workers thanks to increased worker insecurity, automation, bad tax policy, lack of effective fiscal policy etc. etc. etc. Those shareholders aren't consuming and therefore you see growth without inflation. Its a failure of governance.
Bill (SF, CA)
The Fed wants to increase inflation. They want prices to go higher. They want my dollars to buy less. I want my dollars to buy more. The Fed does not represent the little guy. It was created to protect big banks, which is why housing prices were reflated after the 2008 crash to restore the banks’ balance sheets (back to their pre-crash astronomical levels). The Fed and the financial services industry have too much power.
johann (munich)
@Bill I know you won’t want to hear it, but ... read again: “Modest price increases can brighten the economic picture by ***allowing wages to rise*** without crushing profits. Janet L. Yellen, the Fed’s former chairwoman, often describes inflation as a lubricant on the wheels of the labor market: ***It keeps wages chugging along.***”
Bill (NYC)
@Bill Amen to that. The hypercorporatist Bushbama regime was so devoted to protecting banks that we ended up getting Trump.
Memento mori (San Diego)
The Fed is working hard so my dollars can buy less every year. But this is good for me somehow. Rather, the Fed is out of control, acting in ways and with powers that were never granted to it. QE and the explicit 2 percent inflation target are just two examples of how it is operating outside of its legal authority. If you read the 1978 Humphrey Hawkins law, clearly the Fed is directed by Congress to seek full employment and then zero inflation. Not 2 percent, but zero. Second, QE represents a vast inflation of the financial markets and housing. The inflation in home prices that occurred during and after the Fed’s purchase of trillions in securities has permanently raised the price of housing, preventing millions from purchasing homes. These pro-inflation policies are in violation of the letter of the Humphrey Hawkins law. The Fed has no appreciation for how their policies are affecting the real economy. Ten years of inflation, open market manipulation, and other experiments have left the U.S. burdened with trillions in new public and private debt. The December market break was a direct result of the fact that Fed doesn't really understand the real-world consequences of their actions. The original purpose of the Fed was to supply liquidity and funds to banks as needed. It should go back to that basic purpose. Having a roomful of academics making decisions based on the concept of central planning is no different than the old soviet Politburo and frankly reckless.
Stephen Nicholas (Carson City, NV)
@Memento mori Remember that QE came about because fiscal policy was castrated by those of the monied class. I agree with the effects helping the wrong group. These comments all hit the same point: What they are addressing isn't what those of below the 90% in income are experiencing.
RR (Wisconsin)
Where's the missing inflation? In investment-asset prices, where inflation has been doing just fine, thank you. Can we just admit that the "Fed's mandate" is now mostly hogwash, that the Fed's de facto role is now mostly to conjure up illusions of prosperity by inflating asset-price bubbles? It's been going on for the better part of two decades, at least.
ellen (ny)
If the trade war does its "magic,"prices will rise - BUT the benefits will not go to businesses, who will suffer, it will go to the government when they collect the tariffs and the price increases will be paid by the consumer, who will suffer higher prices while wages remain stagnant. Or maybe they won't buy as much and we can all celebrate with a new recessionary period. Go Donald!
chambolle (Bainbridge Island)
The Fed says inflation is low - apparently the statisticians haven’t gone shopping for a small house in the Seattle area lately, where a 1000 square foot bungalow on a lot barely large enough to contain the floorplate will run $1 million. A small 1 bedroom apartment can easily require $35,000 to $40,000 a year in rent. Except for those with ‘in-demand’ professional and technical skills, wages have been stagnant or in retreat for decades, thanks to government and corporate policies that have stripped workers of their bargaining power. The economic gains resulting from ‘growth in GDP’ over the past 50 years or so have floated to the top. Everyone else is running in place, borrowing in a futile effort to keep up with the seductions of the consumer economy. Sure, we can get all the flat panel tvs and ‘smartphones’ and oversized motor vehicles that have become rolling wi-fi connected entertainment centers and other claptrap we want (and don’t really need) - just flash the credit cards. The things that matter — housing, health care, child care, education, secure retirement — have become all but unaffordable for the vast majority of Americans. Most families don’t have enough saved to weather even a minor financial setback without going into hock. The Fed’s statistics don’t tell the real story of the declining standard of living that 9 out of 10 Americans have been experiencing for decades.
Mrs. Claypool (Portland, ME)
@chamboller Or shopping for food. Has anyone else noticed how packaging is shrinking? 30 ounces, not a quart, of mayo; 12 ounces, not a pound, of coffee; 14 ounces of cereal. And on and on............... Is that not a type of inflation?
Mimi (Baltimore and Manhattan)
@chambolle AMEN!!! What's forgotten is the fact that wages for professionals (not the minimum wage earners) have been stagnant for decades. Two income families are holding on by their fingernails because the cost of living increases. Low inflation, indeed.
Pat B (Blue Bell, PA)
@chambolle So very true. There used to be an organization called 'COIN,' as in 'Consumers Against Inflation in the Necessities.' I am about to retire, and it matters little to me that the price of discretionary items is stable- what I need to 'live:' A roof over my head; healthcare; food; gas, are high and heading higher! I am already cutting back in preparation...
civiletti (Portland, OR)
The belief that inflation is low is unfounded. The metric has been perverted to obscure the continual impoverishment of the poor and middle class in the United States.
irdac (Britain)
@civiletti The American way of measuring inflation is the weirdest I have seen. It does not include the day to day items everyone needs. In Britain we have several measures of inflation. The Retail Price Index (RPI) is the most comprehensive and accurate measure of what it costs to live. Consumer Price Index (CPI) is a variant which uses clever mathematics to reduce the figure so the Conservative government replaced RPI with CPI. So as a retired Civil Servant my pension is smaller than it should be. They are now looking at other measures CPIH etc. to seek an even lower measure of inflation.
An American Expat (Europe)
I don't understand why all the "experts" act as if they haven't a clue about what's going on economically re: inflation in the USA. Japan has been dealing with this issue for 20+ years. Are our "experts" unwilling to learn from the Japanese, and to seek advice from the Japanese "experts"?
reaylward (st simons island, ga)
There's inflation, then there's inflation. The Fed has worked magic in raising asset prices, that is the prices of stocks and real estate. It's consumer prices and wages that have lagged. When Powell expresses concern that in the event of another recession, the Fed won't have the room with interest rates to raise "inflation", what he actually means is to raise asset prices, for it's rising asset prices that we have grown dependent on for economic recovery and prosperity.
Kevin Perera (Berkeley, ca)
As someone who remembers the high inflation rates of the late 70s and early 80s, I find it strange that we're now in a position to fight to try and raise inflation levels. It took some very painful lessons to get out of that cycle, and I think we should be grateful for these low levels of inflation that massive technological change and global industrialization have brought. Frankly I think the scare of deflation is overblown - technology sectors like computers, TVs, mobile devices, solar panels and wind turbines have all gotten cheaper in real terms over the years, and those markets are as robust as ever.
See also