OPINION: If the job market continues its robust pace of hiring, rents will begin their ascent again and drag up inflation prints, again with a lag.
Inflation is proving tougher to curb than Federal Reserve Chairman Powell anticipated, and despite indicators that a recession could be coming, consumers and businesses apparently haven’t gotten the memo.
The federal budget deficit — thanks to increased entitlements spending, the Chips and R&D Act, the Inflation Reduction Act, bailouts for union pension systems and war in Ukraine — is estimated by the Congressional Budget Office at $1.41 trillion for fiscal 2023. That’s a huge increase from fiscal 2019, the last pre-pandemic year, when the budget gap was $984 billion.
The president baits Republicans by saying they want to cut Social Security and Medicare. Republicans deny any such intentions, but genuine budget discipline is not possible without entitlements reform. During the first 12 months of the pandemic, the Fed kept the federal funds rate near zero with inflation running at 1.1%. Now the federal funds rate is less than 5% with inflation at 6.4%. That larger gap makes monetary policy appear less restrictive now than when the economy was in a pandemic shutdown.
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