Matt is joined by economist Julia Coronado to talk about inflation, markets, and employment in the pandemic recovery economy. They discuss housing, new and used car markets, and possible strategies toward achieving full employment.Resources:
"Economic Outlook and Risks to Inflation" by Julia Coronado (presentation to the Federal Reserve Bank of New York Economic Advisory Panel; April 9)
"Here's Who Will Be Left Behind in the Housing Boom" by Ali Wolf (New York Times; July 13)Guest:
Julia Coronado (@jc_econ), Founder and President, MacroPolicy Perspectives; Clinical Professor of Finance, UT AustinHost:
Matt Yglesias (@mattyglesias), Slowboring.comCredits:
Erikk Geannikis (@erikk38), Producer
Ness Smith-Savedoff, Engineer
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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
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hello, welcome to another, should be on the box media pod cast network. I met with glaziers my guest today, Julie Carnero as president and founder of the macro policy adviser she's, one of the smartest people. You know looking at short of forecasting big picture economic stuff, a lot of people as open to have been telling me from backbone for inflation.
Came a hot topic that she's the person to follow an and these kinds of issues, and now inflation is everywhere not to be fully about it. But really I mean I've been. You know writing, but you call me for a while now ten fifteen years- and this is the first time that, like inflation, has been a like a non fake thing right, I pray
really had been gone up there, and particularly their sort of several categories. Where prices have gone up a lot, I would say the last
I can remember there being anxious about inflation was just ahead of the financial crisis, formulate that's not a leading indicator of similar dynamics to combat that was very concentrated in energy, very high gas prices, very high oil prices and then, of course, that reverse very sharply. But that was the last time that sort of policy makers were having debates about,
whether this was the kind of inflation that we should worry about or not and as it turned out now,
bigger worries under the surface and not episode
I think we have deeper dynamics to think about under the surface this time too. That is a good place to start actually that sort of episode in two thousand and seven, because I do remember that and if you look back at the charge,
more, because my time gasoline was getting very, very, very expensive and denies is much more so than it is
and it had been a kind of a steady increase for a y all.
Yeah? I guess it's associated with economic growth,
China and other things like that, and energy prices, more broadly we're going up. This was
for we really had the tracking boom. It was a hardship to people write like I'm, not talking about. Like me,
military fury, but just like a man, a person, you doing your job, you gotta get to work every day
you re going along the street respected it's a problem,
we know. Actually we ve looked at consumer behaviour and gasoline prices and there are sort of threshold drive me.
A certain level. People really start to notice. You know they think about a thing,
worry about. It starts to affect their behaviour, sort of gas prices,
move around a lot. People are used to that within a certain range. They kind of ignore it, and then
since they rise above a certain level and that maybe what were kind of worry about right now. Are there enough prices going high enough that consumers are starting to be anxious about it in the tricky part about that is when the commonest talk about inflation expectations, we tend to talk about it,
as if people start expecting higher inflation than it will become embedded in the psychology,
the dynamics of the economy, but actually there is
so some research that shows that once people do start to worry about that they actually start getting more cautious in their standing, so that kind of the opposite effect of sort of a wage price viral. It's kind of consumers start you just get more price, sensitive and more budget conscious, because they are worried that these high prices might last
I think you don't try to sort of explaining to people who are not up to their eyeballs in this way. So economists have this model where ok, I expect crisis will be increasing, and so I engage in this kind of like friend.
He too behaviour pride were signed by the two now because next year you nobody has been able to afford it for
I need to demand
a higher wages and and employers are saying, I mean obviously people who want more money. People don't want to pay more and it becomes a spiral, and I do think that's a little
a natural right like a more normal practice.
Get least alleys and first blush it's like. Oh man, things are getting more expensive, I better safer, exactly Enzo
We don't have a lot of episodes in history to sort of test these different hypotheses about how consumers behave and how that feeds into inflation dynamics we have,
one clear example of a wage price spiral in the seventies and others.
now their inflation was sort of low before that and low after that, and there are different dynamics depending on where we are in the business cycle and this
particular one is quite unusual because, of course, some of the price pressures. Of course,
associated with shutting down in rebuilding the global economy, supply chain, bottlenecks, etc and consumer
especially in the U ass there.
willingness to pay higher prices for certain things like say rental car hers is a function of the rich.
Opening of the economy and the stimulus that was paid out and those dynamics aren't gonna. Last
You know. Eventually, people are going to start saying. You know what actually I took my vacation and now, if rental car prices are gonna, be that high I'm sort of reason
about how I put my vacation and how I get. You know how I transport myself around, etc. So they they're going to start responding to those higher prices. We ve already
see not actually in the spending data that spending on rental cars has declined as those rental car prices have soared, which was a function of you know, all of the distress that hurts went through in selling off their fleets and buying it back and they're not having enough capacity and raising prices and consumers respond and ass. The key question why
Consumers respond to these higher prices. Will they pay them or will they start saying? You know what that's too much and I'm going to adjust my spending accordingly, which is what we saw before the tendon. It consumers were very price sensitive and, of course, now we have the technology in our office to comparison. Shop and prices are very transparent,
does that price and security come back and you know limit how much of these supply chain costs get passed through to consume.
Should this was gonna my personal emotional journey on inflation. I am back to last year. You know I figured buck. Everybody is cutting back on their travel to cutting back on the dining now they're cutting back on their vacations,
We did a good job of stabilizing people's incomes. You know we first, I was like this can be bad. We're gonna shook hands down and began
no money becomes a certain happened. Somebody born hardship, but a lot of deep all does actually had
money you know I like I was in buying expensive salad.
For lunch. I accidentally became more prudent thrifty person and Railways
and I get my vaccine sightings. I'm illegal creed
I'm gonna go, get you in extensive salad. Extra large didn't do that outbreak. As you know, I gotta get. I've got a six year olds. Are we gotta? Take em, you see my parents
yeah my White Sharon's we had, I guess you're gonna ready to do that, and I don't care if it costs me five hundred dollars, forensic markers. I won't go, see grandma because I got his money and what we do. We have to do it. So I was you know
prices or go up and then, like it's gonna, be fine
it should have gone up more than I had yet they were dead. You know that its particular we'd, this used car thing, yet we
car thing- is driving allotted a lot and vessel well beyond. Like ok, hurts is jacking up prices right. It's like new cars are expensive used. Cars are expensive render hours, so it went all the cars
Nor is it asked the chip short and so one of the bottlenecks, and this is sort of a combination of things. So one is, in other words, some frictions in the semi conductor supply chain, Dick
with the trade war before the pandemic, that was fined, of causing some frictions in global supply chains. Even before that, then we had some sort of videos in crowded. You know we had a fire and a big semi conductor factor
in Japan. You know that's just something to happen sometimes, and then we had the pandemic.
The combination of those things led to ramping down a semi can,
after production and meanwhile, this demand for cars that intensified and not just cars, things that you have semi conductors go into gaming systems and
appliances and tvs and a lot of things, and we were buying a lot of those things. You are also a shortage developed and said
conductor production is ramping up, but it takes some time. You know it's not something that you can develop on a dime. It takes some time. So you have you talk to people in the auto industry. We still apply
ugly six to nine months before we're at full production capacity. So you know some of these high prices could persist.
more of a new car production dynamic only used cars? I were already.
In some of the intensity, cool off, so wholesale use. Our prices have already declined for a couple of weeks now, and most of the people in the industry expect that to continue that this huge surges now behind us because hurts his restart their fleet,
people that had to get used cars because they re located to cities where there are public transportation says
during the pandemic. That's happened. A case of the intensity of demand is behind
Thus an now going forward is just whoever wants to use parcels, batches, sort of more normal market dynamics, and so we will see probably prices of used cars decline in the next six months. Probably
one, not in July, but August three December were like
you see that decline is less than the major category pushing up the headline.
You know, consumer price index seconds reported month after month. We should start to see some reduced fear that fear.
headlines and lower numbers by you know. There are still things under the surface that aren't going to ease right away. New cars will probably keep rising for a few more
because inventories are really love. Consumers still want cars and we'll have the chips to make enough of them
and then now, there's more focus on rent inflation. Rents are coming back as the economy comes back in that's your bigger category, certainly
used car so the more you you don't need a big rent, the increase to push the index so there's a lot of it.
makes I the big question too, comes back to the labour market
They have this strange situation where some
indicators make it look like a really tight labour market and other indicators make it look like a really loose labour market and that
mentally matters also for how consumers feel about the
eleven. How willing they are to spend in how price sensitive they are. So again
Get back to the unusual dynamics of the pandemic and these dynamics aren't gonna just resolve
July and August. It's gonna be
Probably the remainder of the year as we saw through this reopening lets you to break, and then I want to look at some of those labour market questions if he would have carried was reading. Would you want to do that?
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So you know some away. You were talking about their dinner. You mentioned how this same kinds of semi conductors to go into cars. They go into lots of others
So you don't games appliances, durable goods and in part of what happened was just like people kept buying that stuff for they bought it at higher rates during the pandemic, because we need to do you weren't buying restaurant meals and stuff like that, and so, if the price of some stuff goes up, but also people have the money to buy it, it's like, maybe not the greatest disaster. But what is interesting is that if you just look at the basic unemployment way,
so really high in a way that makes me like less sanguine that I would be glad if we had all these same inflation numbers as if I got but unemployment was three percent
but its actual still really high and it gets on some level. That's because you know a typical unemployed person. It's like you can just go get a job in the semiconductor fab. But still I mean is this weird about the right like how can so many people be jobless? While we also have my shortages of everything? Well, we are in the middle of a big policy experiments and that big policy experiment is the result of you could column policy failures from the last cycles. Alas cycle we didn't providing
fiscal support during a crisis and it damaged the recovery dynamics and monetary policy was overly concerned about inflation and probably didn't let them
labour market run as strongly as it could and policy.
Hers realized they looked ending. It was very clear in the report,
We dynamics and expansion dynamics last time that we could have done better. We could have recovered faster and we
I've seen better labour market outcomes for more people. So, as a result, this time
I'm. We provided way more support during a crisis than we ever have, and we did it by just giving people money. We didn't I
a lot of conditions- and you have to fill out
a zillion paper words and all of that kind of administrative burden tends to limit, take up and slow the
of money down in just the nature of the pandemic made it easier politically to just give out challenge, because it's not anybody's thought, in contrast to the housing crisis labelling
People like I didn't buy a house irresponsibly. Why should I help out my neighbor, who did now that it was nobody's? Thought was more palatable to do this, but we did any. We keep people not just
smaller, which is what we ve done before. We give them enough to get through and again not everybody. A lot of people experience a lot of hardship, alot of people that money that maybe didn't need as much as they got.
and solutions. We have these strange dynamic were there were a lot of people that were actually flushed with cash. They kept their jobs, they got some stimulus and-
they weren't, as you say, spending the normal money on things that travel one and entertainment and Niels, and so they will actually have a lot of money and they spent it. So we have these very disparate
and this has been also one of the most uneven recoveries in terms of who lost their jobs, who experienced the hardship
It has to be the people least able to fund a sharp like that, like a jobless, lowering some workers lost their jobs where
as college educated workers taking work from home, really kind of heroin
the milder recessions. They found record so the aggregate statistics
right now, look very strange because you ve got middle
higher income consumers doing pretty well actually ends
spending money, whereas we still have a significant
segment middle and lower there
in distress still in view
much needed. The fiscal support just to keep a flow and are still struggling to find their way through and also in the other labour market dynamic that, I think, we're see.
under so much evidence of it as we go through this reopening people are changed by a pandemic. They don't want to do the same things they did before they have experienced
personal revelations and changes as a result of the pandemic perspectives have changed what people want to do. What they are willing to do is changing in. That complicates the matching up of jobs,
between employers and employees, employers long to go back to the same thing in a lot of cases and employees and, like you know what I actually don't want that anymore
wanna work in a restaurant. I would
other Chica, predictable schedule and Anon socially facing job. So to get those workers into restaurants,
to pay them more or changer model, give them predictable hours or other types of arrangements that
was similarly even in technology or finding and for other white collar industries. There's intention right now:
managers and employees manager long people back in the office employees are like. You know. We actually know the work from home is working for me, and so there's gonna be a lot of interesting dynamics as we go.
forward in terms of who in
where and what arrangement and you're different industries, indifferent firms within industries are going to end up with different mixes, but there's just a tremendous amount of friction right.
in the labour market, not all of which is there, you know all of this could end up with a happy or more productive workforce on the other side. But it means that we ve got a strange situation,
very high unemployment and very high numbers of job opening,
I must say I mean job openings were surging in the spring, as you know, things started to reopen and people do not immediately come fill them
than from April two. May you know what kind of flattened out I mean. I don't know, there's only so much. We opening
can do and make. Maybe those positions will start to get filled over the course of the summer either the wages go up. What have you so it's?
like. You seem pretty confident that the used car situation is going to wait
Their hearts and probably a longer time online, but yeah. Similarly- and I guess, does it linked markets? There's some stuff like air travel, that I think we can very straightforward way linked to the reopening, so Rynch went down during the pandemic had seem pretty muted, but that's now really coming back and with rent the people don't buy that much used cars, but a modest increase in rent really pushes up inflation. I mean it seems like we should continue to have short of high. I don't know I'm no real forecast.
Above target inflation for awhile as long as friends start rise well, so ran still less think about how the inflation measures that the government power-
as measure rounds versus some of these market indexes like Mozilla Index or other measures that are going up really sharply. Those market measures of ran are measuring rental listings. What's the market listing of rents versus the consumer price index, which is trying to measure what are people actually paying
so your contract rent does you know you recycling, maybe every year, if you're, renting, and so it doesn't
turnover as quickly so when we look at like the consumer price inflation,
Rachel inflation slowed. It never went down as much as market rents went down in the crisis and the problem
we want rise as much as these market listing rents are rising right now, because in some senses, if eating similar to airfares, Rans went down.
Never heard of normalizing and so on a percentage base that looks like a huge increase, but it's all right,
low base. So one of the decision you drawing their does between sort of like rent on the margin, so
if, like last August, you wanted to move to, men had right, yet a really good deal rise has acknowledged.
People were do or moving command hand, baggage ain't, gonna go person in Manhattan right, I'm just move command had so like the average, where we have really high, but the main rant had gotten.
Freakish low, and now it's going other were going either way but again from New York. It's like barely getting that it's not even back to where it was before. It's just coming up fast towards that level. So that looks like a huge increase, but again the average person in mind.
Captain, what they're paying and what they're going to renew their LISA
still even get a car relative to what they were paying before you know again, depending on
Market rules are but yeah exactly is the average versus the marginal these market ran are capturing that bus boom and then the average rent moves much more slowly, but surely
a huge divergence in terms of people's like actual situation, based on what they do
it went like if you really earned through an
in some kind of extension
Why did the barn and people were desperate yeah? You might be in great shame
First is normally you lock it in four eighty men and not just twelve, whereas other people, you know, maybe there is about to expire and they could be seen a big ike and, of course, a lot of people went. Many people own home
and so, if you ve, been owning a home, your equity as propaganda way up and that's not considered inflation, statistically when the sale price
palms, go up, that's right, so housing is unique in that it is both a vehicle for saving and it is something we consume so we consume.
housing services, whether we owner ran, you need a roof over your head, and so we try to capture doubting consumer price. Inflation is the cost of putting a roof over your head, whether your awning or your renting, it doesn't matter. You were trying to capture the cost of that budget item and whether Europe
House appreciate or depreciate whether you have equity in your home or not that's about she does she for consumers, and so that's not included.
price inflation. So the way we measure things tries to put those two things: a parcel house prices
goes into your balance sheet and your net worth, but what you're paying
a rental equivalent basis is not tied directly to house,
as Is- and this is always, I think, one of the weird there somewhere and I understand what they do it. But it's like you get your mind around satirical elements, because they impute the rental cost of housing, dry, homeowners and so
you just talk to normal human beings. If you buy a house, you know you take out a mortgage and then its price goes out. Twenty five percent or something you ok, that's gray. Your acid value went up. The wrench is a really big aspect of the consumption basket, but whether you actually feel that that's a hardship is gonna have a great deal to do with whether you are actually paying rent or only right in some kind of statistical interpolation. Unlike the gasoline redwoods, like everybody gets really everybody here when they ask us expensive, exit
no that's a good point because think about most farm owners. People actually entering homeownership is a small share of the market. Most people have already been in their home Xray homeownership of sixty percent, plus okay, so for those people their hum value has appreciated, so they feel like they got some
in their home more than they did before, and meanwhile they were able to refine use their mortgages to lower interest rates, so their actual monthly came and went down. So that's it.
A deviation from a monthly cash flow, a standpoint, the cost of being
that home one the home is more valuable and your paying less to be in it. That's a great windfall for homeowners. It's obviously not good news for those who are trying to enter homeownership.
So they get the short end of the stick, your getting at an earlier with. If you were smart and were able to, you know me strike your rent at the bottom and during the pandemic, your Manhattan,
You came out ahead, whereas, if you're trying to move demand have now you're paying a higher ran, so there's
these dynamic set. Some people came out ahead. Some people end up paying the I ran and what we're trying
Do when we're thinking about average inflation for the average consumer is put out altogether.
You know I was that of cardiology recently because my car was broken, but I had the opportunity to ask some people who are buying used cars like, but what
we're thinking tat, you can always curious leaving that did did they think you are terrifying and run away from you, but you know several of them said: did they have recently? We finance their houses, so they had this extra money, which I guess you know that several points
in my heart, what would have asked them to buy something other than a car without windfall yeah? You know that constructive to the overall
but you know you got my restaurant meal still grandmother service workers, Oda Hop, go, go higher, some people to mow your lawn or something we have a lot of inflation, indifferent, good sectors in part.
Because people do have a lot of money. So, yes, sloshing around from there. The stock markets way up
hominid equities weigh up. People got, I mean it's a stimulus tax, but it's like all the levers haven't like your problem and a lot of money into people's magazine. At least some of the rich get richer exactly it's like the middle class. Well, yeah,
but it's I haven't even for sugar, but it means of limited to the trading Zella juveniles us is buying all the cars and never fear example, actually gets to the question. Around pray sensitivity is
People were to be able to refine use their mortgage, and so they got a little bit more ruin their monthly budget, and that makes them a little bit less price sensitive when they buy that car, because they can afford a little bit more of a car payment. You know that's kind of this again back to this policy experiment. Instead, it
kind of limping out of recession. We are surging out of recession on a wave of liquidity. What
it, is though, next year next year, you're not gonna, be you know have that same change, people,
refined use their mortgages next year, because rates are gonna, be lower if anything I'll probably be a little bit higher. So
whatever your budget, is it's not gonna change when it's in terms of your house payment, as though you won't have that
genes that new calf to go to the car market, so whatever you're gonna pay for the car is gonna just depend on what you're making out of your jaw and ass. The ideas like,
lot of this stimulus was one time a lot of the money that we put into people's pockets because of low rates and refinancing that a one time, change that temporarily made people s presence
in their going on in their spending. In that's good were surging out of the recession and it's a very strong recovery on the other side
I, though, once we settle into ok, now we're just in a normal expansion where people spend money based on
are earning at their jobs? Will they be more press sensitive? I ask that the answer will be here: it'll be a more normal dynamic where I'm gonna go out into the marketplace for things that I want based on what I'm earning and then I'm gonna make choices based on what things cost and that's gonna be kind. Is the
Things usually operate rather than just some kind of constant bidding wars for everything we started out. We were talking about the sort of big energy price inflation that happen
two thousand and six slash two thousand and seven, and it always seemed to me that one reason we didn't have outside of those sectors is that, with all that, other stuff that we buy today, this is an affluent country right. Most people are not at the edge of subsistence and expensive. You just don't go
I like to eat out. You know I would you say if I couldn't, but it's not the end of the world. Where is like filling up the car? You know I live in a workable neighbourhood and you know it would go fifty minutes on foot to the office, but most people aren't like that. You can change that very rapidly. So I mean: do you expect
that all the kind of high prices in there in the sort of durable goods markets will just kind of flesh out, as people spend our
their money, that thou say you now have just I'm, not gonna buy a table. If that's what you mean I do,
in the destiny, be a ship that were already starting to see a little bit of a ship back towards experiences and services and away from
goods and again when some of that cash has worked its way through the system and you're making your decisions about what to spend based on your income, you are going to check the price tag and planned out you're spending a little bit more cautiously or what more budget sensitive one
so I do think that one overall spending any one of the crazy things about this. From the perspective of an economist like me, we ve never seen this kind of
shift, in what we spend money on goods defending
way about pre handshake level services standing still way below pre pandemic levels. That doesn't happen use.
play see some one of the reverse people pullback honourable good spending, cars and houses when unemployment is high
They are worried about the future. So again we sort of slipped the dynamics, partly because of the pandemic, partly because of the stimulus, but
On the other side of this, do we really want to just be hung for down in our homes, speaking bread or building deaths, or do we want to go out in ya, gotta, concerts and gonna restaurants? And my guess is low
more back towards prior passport. That standard pattern on goods swayed is basically most people replace some of their stuff before it has completely
Now what did is varies, but it's like, depending on what you're into you know like you, might up greater fallen. Even though your old phone works, you might get a new car if they were all car still drives.
And when times are bad, that's what people dont do right. They say. Ok
because you can always go on next year. You know car is a perfect example. You can always make your car last. You know do that
here in and get another year or two out of it, and so it's very unusual that we instead had this kind of goods frenzy.
and you could imagine that going away, but then the quest
It is, as you viewed alluded to a couple times. The premise of this was
will we want a rapid labour market recovery of the clear, didn't gas? Anyone you ten twenty eleven because of you can bend to that time. Rights of people lost their jobs, and there was this optimism at that time
that. Well, you know the fall with Steve, but, like the guy who's gonna be, I ran the recession. The stronger the recovery way cause it's like, while they're just all these people jobless and then, if you look at this recession, it looks in between to me
ride, like we have seen seven hundred eighty five
thousand jobs, five hundred eighty three thousand
and it had remained so that much better.
It is our big numbers thousand nine number of Montana Amber. Yet it's
Oh my god, if you like draw that why that's still not like a v, that's my war were back at full employment six months
then optimistically right. You know what I'm not getting into variance and other kinds of stuff like that. We would do to see employment accelerated. Some
from here to really sort of get back to where we were in February. Twenty twenty yeah, I mean, let's be clear, that the norm of the last three recoveries has done what we call the jobless recovery, where it takes years to get back to the pre pandemic level of employment. We have people like last cycle was horrible. We had people dropping out of the labour force, we have labour force participation of primates workers.
Declining for five years that is so depressed and so you're right that even at the current pace it would take
more than a year to recover prior levels of employment a year and a half or so, but we would hope to see stronger numbers we may see, especially during July August September, with schools reopening with unemployment benefits, expiring I'll, throw up sober in there. We could season stronger numbers than we had very likely. We could see millions
friends, that's not out of the question and on the other hand, there are as we discuss these sort of frictions of employers need just search Remo
these employees in others the ants right. You have to match up with what you want, what you need you, after
the review background check and that's a process to take some time and businesses are restructuring. What the delta variant
Its relevance is not likely to knock the, U S economy down, but it might change how fast we go back to the office. What does work from home? Look like how long
the people want to live in the suburbs, maybe that it ends up being a permanent preference change rather than you had. Some of these different nuances could be impacted by whether the pending
just goes away, or we just learned how to live with this higher level of infectious disease. I mean that seems like you know
You you have sort of reopening way
study and was soon
sooner or later the hotel rooms are gonna, be fall.
I don't mean you, it seems like get up the hotel chains, they're they're, trying to hire back housekeeper. Yes right now whether people want
do. That or not those jobs round, but you know
walk round, downtown DC
and it just still kind dead down there and if we
have more variants of things like that. Like it just kind of
things to me that you know some of those lunch places like that's not gonna reopened,
rarely ever or it'll, be really different, and that's a big
of residual, all of people who work in it
some other kind of employment, someplace else, which is which is hard
I mean you can count on a one time: stimulus
during that automatically correct and that,
is where recessions and business cycles they all are different and they all have different drivers and pattern.
but they all share that dimension, which is that the economy never goes back to where it was. We always go forward to something out.
And what we go forward to we still are,
In that our end, that implies changes in business
while some businesses don't make some will new businesses come into being. We had actually pretty decent business formation statistics. You know a piece of business formation during the pandemic and ass
Jaime into the labour market recovery. That's why sometimes it takes time because
business. That's holding on now might actually conclude is not viable and another business is figuring out the new land
Hagen, saying oh, I have an idea for how to get lunch to work from home workers.
You know the DC suburbs, or something like that. So these kinds of
patience and business model changes and restructuring, and by
the way, if we call through
who earnings reports across industries. Everybody is talking about trying to improve efficiency, and
asian and combat leaned her, and that also a feature of recoveries is that business is try to.
Regain profitability by keeping their labour costs low and that's a headwind to hiring as we come out of recession, so
There is every reason intact in anything, the pandemic accelerated the pace of business transformation through TAT. Now
g, and so that could be a headwind on the labour market recovery and now
at one time, stimulus won't fix that. Although you know, the infrastructure package could create a whole new class of job dry in several new classes of jobs.
so again there might be some time and matching people to jobs, but it's not like there won't be jobs. It will just be that there are some time may be training. Maybe recruiting and relocation
involved in getting that economy back to full employment where they had thought it to be. So this is sort of the dilemma that I think the FED
Looking around their urging patients, I mean it. I think it's good
There had been in the past a kind of like pre emptive yak against him. Yes in mentality at the FED, they made it impossible to really get to full employment, because you were always
turning round at the first sign of trouble and now they're saying no, I mean they said before the reopening that inflation place will go up. They said that was fine, that they're looking at an average over a sort of
hazy respect even amount of time, but but there has been more, they were prepared, for.
We ve gotten more inflation yeah. We had forecast sure too, that puts,
sure on to you start talking about. When do you put on the brakes, but at the same time you would ideally like to say, Morgan UP gonna put on the brain.
while others, millions of people to sort out this labour market reallocation. The timing is tough, weaken
Ok, this is transitory, but for how long will so again will cheer Powell said to Congress? I think he laid out very nicely, which is to say yes, it's been higher than we expected, but if you look at it like we ve been talking up
used cars, reopening hotels, etc are worth striving,
and we know that that's not gonna keep going at this rate, inflation isn't a one time price increase, inflation is repeated. Price increases year after year are airfares than a keep rising. At this rate,
no they're just resetting back to normal, and so what's your pals
I thought was nice. Is it's not gonna take forever for us to figure this out, but it will take more time. We need a few months. So I see the chair. Power is trying to kind of calm things down an ok
you're gonna start planning, we're gonna start planning the normalization policy, the
action in Bonn purchases spurs we're gonna plan that out at the same time, give us
a few months we need to get through July August such
brought home and then we're gonna know better what this looks like and by the way, inflation doesn't like
move like a rocket ship, we're gonna have time to adjust, and, yes, they have tools to adjust. Just them, calling forward that timeframe for planning their reduction in Bonn purchases had a big impact on the market, writing
big impact on inflation expectations in financial markets, and so we can, they tightened things up. Yes, then, has the ability to tighten things up, but what s things are transitory, what is
we get through this reopening and we get through the low hanging fruit of connecting people with jobs, and then we're still left with a big chunk of unemployed people off and price pressures. That said very quickly, what, if that's the world we end up with in four months five months? It would be a potential policy,
state to commit to recalibrate in policy now at the peak of everything happening. At the same time, the peak of fiscal stimulus, the peak of reopening the peak of that's the nations like we know this dynamic is transitory, Elise, big elements of it are, and so, let's just lay the groundwork, make the plans but
the same time. Let the economy go through this once, were you know, November December, working to have a much better sense of weather?
This dynamic is truly a better stronger recovery or we just went through a sugar
ass. We were ending up with some high long term unemployment. That's me very important for calibrating monetary policy to what would be a sort of good news versus bad news over the next few months. Wait a minute. You know what would come in that would make you say: ok like this gone, really well verses. We got a problem and you know tat. We may be stuck with with long term unemployment.
Rang Y. All that we don't have an obvious solution to so good news looks like job gains that are adder above the June job gain right. So can we get job gains?
eight hundred thousand million per month for the next four months. That would be great news that
go a long way towards research
not all the way that would only get us half way back from where we are right now to the level of employment where we want to be, but it would get us alive
I certainly would be a sign that a more sort of healthy wage spending dynamic, more organic growth, dynamic,
can be relied on, and then on the other side of fast fading of used car prices,
alas, goods inflation
your moderation from the peaks of inflation that we ve seen tat will be good news that we called it spread out
the sad to keep going for it.
steadily methodically, not being arrives and let the recovery keep going. I think if they were forced by high inflation, Prince
to call things forward that create a lot of volatility for marketing her confidence, and that would not be good news. So,
Hopefully we get some moderation again. It's not gonna be that we saw back in prices.
He's gonna, be there inflation moderates from here gradually? That would be a good leading indicator that are right about the transitory dynamics and then just faster matching between
job openings and people looking for work and getting that faster labour recovery. That was the whole point of this exercise. The whole point of this did policy push was, let's get people back to work, faster lesson,
Let that long term unemployment linger and labour force participation
Jeanne just remain law. We want long to get people back to work. Absolutely. Thank you so much I let you go to that. Actually Coronado from
echo policy advisers. Thank you thanks, as always
are sponsors for producer air genetic asylum abuse would back onto.
Transcript generated on 2021-08-02.