That elusive soft landing may be materializing
Take a deep breath. Mike Konczal analyzes the inflation numbers and it should make you all feel a little bit better about things. For now.
We’ve had single good months in the past year, hopes that were quickly dashed with reversion. But now we have two in a row, the first since summer/fall 2021.
But as opposed to then, the underlying trends are all pointing in the right direction. Let’s dig in.
There are two key things Powell has discussed. The first is the three things he recently said he is watching for: goods in deflation, housing peaked, and the rest of services to be cooling down.
All three happened, and happened again for the second month in a row.
The second Powell wants is to see divergence between 3-month inflation and 6- and 12-month inflation. For the past year, they've all been lined up the same, a discouraging signal through the monthly noise of this-and-that.
But now we finally start to see a break downward.
And obviously there’s a long way to go, but if you look on a further timeline, to pre-pandemic times when inflation was just below target, you can see that 3-month average decline looks even bigger.
Let's dig into specifics: here's services broken down in housing and the rest of services.
There had been some big “rest of” prints in the past year, I shared the worry. But at this specific moment, it’s tough to see any wage passthrough in this generally inertial category.
It's a joke around the office that I've been saying "yeah, goods should go into deflation over the next six months," but for the past 19 months now. Like, it's been a lot of months.
The joke is over coworkers. Check out that auto price index in freefall.
(And as the Odd Lots fans and @fcastofthemonth stans know, medical services are a driver here. But for those who might go there, yes, services ex housing *ex medical services* is also still low. We're already ahead of that here.) /7
Inflation is landing where we want it while we added over 800,000 jobs in the past three months.
This is the very definition of a soft landing Powell articulated earlier this year. It’s there if the Fed pauses and let’s these positive developments all play themselves out.
Originally tweeted by Mike Konczal (@mtkonczal) on December 13, 2022.
I hesitate to get my hopes up. My very uneducated, primitive instinct has told me that this year’s economic turmoil was logically tied to the fact that the world was turned completely upside down by the pandemic and that it would take a while to put it right. It’s not your usual downturn or recession. If Konczal is right and we are starting to pull out of it, that’s very good news.
But don’t assume that the government can’t screw this up. The Republicans are planning to hold the debt ceiling hostage for massive spending cuts and the Democrats are being weirdly passive about it. I guess Sinemanchin must be against them raising it in the lame duck session before the House cretins can get their grubby little paws on it. That’s the only possible explanation for not doing it now.
It’s really too bad. These Republicans are batshit insane and I don’t think they can be counted on to capitulate even if their donors are pressuring them to do it. They are that far gone.
So, enjoy the moment. There’s a good chance the Republicans are going to fuck it up.
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Happy Hollandaise!