There are two really problematic issues
that we don't talk enough. How sensitive are the stubborn
components of inflation to interest rates?
They're not very sensitive. That's probably number one.
Problem number two. What indications are we getting of the
economy is slowly weakening? So it was is the issue that once again,
the Fed is going to have to pivot this time, not on the basis of the inflation
numbers, but on the pieces of the real economy numbers.
It will pivot yet again. And then there's the big issue that I
know no one wants to discuss. Go on.
And I insist I understand that fully. Is is the inflation target the right
target? We all talk about wanting to go back to
2%. Every single quote you had this morning.
Assumes that 2% is the right inflation target.
2% totally arbitrary. But I understand why no one wants to
talk about this. But on this.
But we should all realize that if we are pursuing the wrong inflation target, the
risk of a mistake and that mistake would mean sacrificing growth unnecessarily.
The risk of that mistake is high, especially when the low income people
are most at risk. I know how much criticism you get every
time you bring this up because you've been bringing it up with me for the best
part of 12 months, maybe longer. Now, if we go back to the Jackson Hole
speech from Chairman Powell in August of 22, when he talked about pain being
required to get inflation under control, then the experience of the last 12
months where we all got seduced by this idea that maybe we don't need pain
whatsoever to get inflation back under control.
Are you saying that the pain that's required to go from 3 to 2 just is not
worth the squeeze? Correct.
I'm saying that if you were to establish an inflation target today based on the
secular issues and let's talk about it, the domestic paradigm is changing.
We no longer in this Washington consensus of deregulation,
liberalization, fiscal prudence. We are in a world of industrial policy,
government intervention and fiscal irresponsibility.
Let's talk about the international. We no longer talking about ever closer
globalization. We're talking about fragmentation.
Then look at the transitions we have. We have major transitions going on, not
just generative life sciences and sustainable energy.
You have things happening in healthcare, You have things happening in defense.
You have things happening in food security.
If you put all that together, it is a different inflation environment.
It's a world that's subject to higher inflation.
And we've come from a world that was subject to lower inflation.
