Tangle - The Fed takes on inflation.

Episode Date: June 16, 2022

Yesterday, the Federal Reserve approved the largest interest rate increase since 1994 and signaled it would continue lifting interest rates as it attempts to slow the economy and combat inflation. Plus, a question about the alleged "recon tour" of the Capitol.You can read today's podcast here.You can subscribe to Tangle by clicking here or drop something in our tip jar by clicking here.Our podcast is written by Isaac Saul and produced by Trevor Eichhorn. Music for the podcast was produced by Diet 75.Our newsletter is edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. If you are listening to this podcast, then you are probably like me. Chinatown is streaming November 19th, only on Disney+. for the perfect blend of camping and comfort. These handcrafted hideaways are designed to be more than a destination, but a way to create distance from the relentless demands of work, schedules, technology, and, of course, political news. Each cabin offers everything you need and

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a place where you get views from across the political spectrum, some independent thinking without all that hysterical nonsense you find everywhere else. I'm your host, Isaac Saul, and I am re-recording this episode because I just recorded half of it without pressing record on my recording thing. So that sucks. I just wasted 20 minutes of my morning. But here we are. I'm back again.

I'm restarting. And now I don't have an excuse for mispronouncing or screwing up anything. God, that's a bad way to start the day. Before we jump in, I want to give you guys a quick heads up. Tomorrow, we have a subscribers-only Friday edition that's coming out. As always, in order to get those Friday editions, their newsletters, you have to go to readtangled.com slash membership. Tomorrow, I'm going to be covering the story of Ray Epps. Depending on who you are, you may or may not be

familiar with him. There's a bunch of conspiracy slash maybe not conspiracies, maybe something real, maybe some stuff we don't know yet about who he is and his role in January 6th. I get tons of emails about him. It's a kind of interesting, sal 6th. I get tons of emails about him. It's a kind of interesting, salacious story. I figured I would write about it because it was fun to look into. There's a lot of debate about it. It's very divisive.

I think generally people on the right think he's somebody and generally people on the left think he's somebody else. So I'm going to cover this tomorrow because yeah, the people wanted it. So we're going to do it. So if you want to get that story, the people wanted it. So we're going to do it. So if you want to get that story, you have to subscribe. That means you have to go to readtangle.com slash membership to subscribe. On today's podcast, though, we are going to be covering

the Federal Reserve rate hike, what it means for you and me and the people. Before we jump in, though, we'll start off with some quick hits. First up, President Biden announced another $1 billion in funding for weapons to be sent to Ukraine. Number two, Dr. Anthony Fauci tested positive for COVID-19. The 81-year-old director of the National Institute of Allergy and Infectious Diseases said he had mild symptoms and was being treated with Paxlovid, an antiviral medication. Number three, an FDA advisory panel approved the use of Pfizer and Moderna COVID-19 vaccines for children between the ages of six months and four years old. Number four, the Buffalo, New York gunman has been charged with 26 counts of federal hate crimes and weapons violations for allegedly

killing 10 people in a grocery store last month. Number five, President Biden signed an executive order aimed at protecting LGBTQ people from conversion therapy and expanding access to mental health resources for LGBTQ people. Federal Reserve expecting to announce the biggest rate hike in decades a dramatic effort to slow the economy and here's raising rates by 0.75 percent trying to cool off an overheating economy and bring down record high inflation i don't think this is like the 1970s at all, where people were expecting steadily accelerating inflation. This is a time where we'll have some temporary inflation. Everybody's expecting it to come back down. Clearly, the 75 basis point move shows that they think the situation requires aggressive action and a faster timeline.

requires aggressive action and a faster timeline. Yesterday, the Federal Reserve approved the largest interest rate increase since 1994 and signaled it would continue lifting interest rates as it attempts to slow the economy and combat inflation. The rate hike was 0.75 percentage points and the Fed expects to raise rates four more times this year. A quick reminder, interest rates represent the cost of borrowing. When the Federal Reserve raises interest rates, it makes borrowing money more expensive. Banks will pay more to borrow money, then charge customers more to borrow the money they have borrowed. When interest rates go up, fewer people can afford mortgages, fewer businesses can borrow money to expand, and the economy slows down. It can make the borrowing costs of credit cards and auto loans higher too.

In short, interest rates impact you by making credit card debt, mortgages, and loans more expensive. And a reminder about inflation. Inflation is measured with the Consumer Price Index, the CPI, which is designed by the Bureau of Labor Statistics to measure price fluctuations for urban buyers who represent the vast majority of Americans. The CPI tracks 80,000 items in a fixed basket of goods and services representing everything from gasoline to apples to the cost of a doctor's visit. There is also the core CPI, which is a basket of prices that excludes energy and food, which tend to be the most volatile. Right now, inflation is high,

so the Fed is raising interest rates in hopes of cooling off the economy while trying not to set off a recession. That's a time when the U.S. economy shrinks over a period of months, which can cause higher rates of unemployment. The Fed also revised upward its expectation for inflation rates to 3.4%, an increase of 1.5 percentage points. And it cut its 2022 economic outlook from a 2.8% growth in gross domestic product to 1% growth. Clearly, today's 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common, Fed Chair Jerome Powell said. We want to see progress. Inflation can't go down until it flattens out. If we don't see progress, that could cause us to react.

Soon enough, we will be seeing some progress. In a moment, you're going to hear some reactions from the right and the left about this, and then my take. First up, we'll start with what the right is saying. The right questions if the rate hike was enough. Many say the Fed's outlook is fantastical and a recession is coming. Others argue the blame should be on Biden and Democrats' fiscal policy. The Wall Street Journal editorial board asked if this will be enough. The media and market chatter is that the Federal Reserve finally took out the anti-inflation bazooka with a 75-point rate increase on Wednesday, and there's no doubt Chairman Jerome Powell

sounded hawkish rhetorical notes, the board said. But the overall message still looked more like a central bank slouching toward inflation reality, but not yet convinced it has to do all that much to get prices under control. The 75-point increase at a single meeting was supposed to signal shock and awe, and it was the Fed's first move of that magnitude since 1994. Mr. Powell also said an increase of between 50 and 75 basis points is likely at its next meeting in July. But if you look at the Fed's median forecast, the Fed funds interest rate is expected to rise only to 3.4% by the end of this year. That means increases will taper off through the rest of the year, and the Fed predicts a peak of only 3.8% in 2023. The Fed is front-loading its interest rate increases, but it's still not anticipating that it has to go all that high to beat inflation, the board said. Will this really be enough to get

consumer price inflation down from 8.6% today to the Fed's target of 2%? Perhaps, but at this rate, it's going to take a while. Judy Shelton said the Fed's moves could have unintended consequences. Given the negative effect pending interest rate hikes are expected to have on employment and economic growth, not to mention the devastating consequences for financial markets and 401k retirement plans, this seems like a good moment to ask. Does the Fed's approach to managing the money supply facilitate the productive use of financial capital, Shelton said. Should the Fed be encouraging financial institutions to keep money idle in depository accounts? How does that contribute to increasing the supply of goods and services? This could be precisely the wrong way to carry out the Fed's mandate to promote

stable prices and maximum employment. People may be starting to question the wisdom of wholly discretionary monetary policy as they are asked to accept a punishing sequence of rising interest rates. But a punishing sequence of rising interest rates seems to be the Fed's only feasible option for addressing the latent inflation it enabled, which was triggered by fiscal stimulus, she said. All of this should cause us to rethink how the Fed intervenes in the economy. Neither artificially high interest rates nor artificially low interest rates are most conducive to productive economic growth. What a market economy needs is meaningful price signals, real interest rates.

The New York Post editorial board said Biden's denials ensure more pain for Americans down the road. Even President Joe Biden now admits we're going to live with this inflation for a while, yet he won't acknowledge his own role and fellow Democrats in fueling the crisis, or that Dem ideology precludes them from taking key steps to tame the beast, the board wrote. Economists all cite the same basic cause of higher prices, rising demand and shrinking supplies. Dems already recklessly fueled demand by showering $1.9 trillion on an already hot economy via Biden's American Rescue Plan. They added to that with a $1.2 billion infrastructure bill and pushed to spend another $5 trillion in Biden's Build Back Better legislation, all on top of the extra $3 trillion spent in 2020 when COVID erupted.

Nor did they lift a finger to deal with supply chain issues driving shortages, many caused by lockdowns they pushed and bonuses they gave to workers who refused to return to their jobs. Now, even as inflation soars, the consumer price index hit 8.6% last month, a 41-year high, they want to shell out even more. Biden is eyeing billions in student loan debt forgiveness and subsidies for housing and daycare, for instance. That won't curb inflation. It'll drive it higher. That leaves the fight against runaway prices to the Federal Reserve, which might trigger a recession in the process. Meanwhile, Biden blames Vladimir Putin, Donald Trump, and Republicans for inflation and hurting the economy.

Alright, that is it for what the right is saying, which brings us to the left's take. The left is encouraged by the rate hike, saying it is the right step. Some worry inflation is going to lead to a red wave in the midterms. Others say inflation may stay for a little while, but we're not returning to the 1970s. Sebastian Malaby said the inflation fight has begun in earnest. For anyone who wanted proof that this is not the inflation batter 1970s, Fed Chair Jerome H. Powell just provided it, Malaby said. By delivering the biggest interest rate hike in almost three decades, Powell has gone a long way to restoring the Federal Reserve's inflation-fighting reputation and provided a lesson in how government functions when presidents respect institutions.

With the House committee on January 6 reminding us of Donald Trump's attempt at institution-wrecking, the contrast should be a boon for President Biden. Sadly, this is politics. Responsibility won't be rewarded. Powell's move is all the more impressive because investors were already running scared, Malibu said. As of last Thursday, the S&P 500 stock index was down 16% from its peak, with the tech-heavy Nasdaq down even more. Then Friday's horrible inflation news, the consumer price index is up 8.6% from a year earlier, caused investors to begin anticipating additional Fed tightening. who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime,

Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. That was enough to wipe a further 3% off the value of the S&P 500 by day's end. Given that reaction, the Fed might have concluded that it could leave the dirty work to investors themselves. The slump in the markets, which has come with a rise in long-term interest rates, means the financial conditions were tightening without the Fed having to change course. But the Fed refused to take this easy path. In the Washington Post, E.J. Dionne Jr. said inflation could leave us with election deniers

in charge of democracy. The Fed's decision to raise interest rates by three quarters of a point, the largest single increase since 1994, put the economy smack in the news cycle while underscoring how little control President Biden has over what happens to cost between now and November, he wrote. Meanwhile, the House committee investigating January 6th continued its effective work in calling attention to just how off-the-charts dangerous and egregious Donald Trump's efforts to overturn the 2020 election were. Its hearings have shown how close we came to a Democratic meltdown, how complicit, often through their silence, many Republicans were with Trump's schemes, and how the threat to our democracy is ongoing. Yet none of this could matter on Election Day, Deion Jr. wrote.

If Republicans up and down the ballot win this fall because so many voters choose to punish Biden and the Democrats for high prices, the GOP sweep would carry into office outright election deniers as well as politicians too timid or too opportunistic to challenge them. As Amy Gardner and Isaac Arnsdorf reported in The Post, more than 100 GOP primary winners backed Trump's false claims of election fraud. Former Fed Chair Ben Bernanke said we're not going back to the 1970s. Although the inflation of the 1960s and 70s had higher peaks and lasted

much longer than what we have seen recently, it's true there are some similarities in what we are going through now, he wrote. The inflation of a half century ago, like today's, began after a long period when inflation was generally low. In both cases, heavy federal spending on the war in Vietnam and Great Society programs in the 1960s on the response to COVID in 2020 and 21 added to demand, and shocks to global energy and food prices in the 1970s made the inflation problem significantly worse, just as they are doing now. But there are critical differences as well. First, although inflation was very unpopular in the 1960s and 70s, as it understandably is today, back then, any inclination by the Federal Reserve to fight inflation by raising interest rates, which could

also slow the economy and raise unemployment, met stiff political resistance. Besides the Fed's greater independence, a key difference from the 1960s and 70s is that the Fed's view on both the sources of inflation and its own responsibility to control the pace of price increases have changed markedly. Nevertheless, today's monetary policymakers understand that as we wait for supply constraints to ease, which they will eventually, the Fed can help reduce inflation by slowing growth in demand. Drawing on the lessons of the past, they also understand that by doing what is needed to get inflation under control, they can help the economy and job market avoid much more serious instability in the future. instability in the future. Alright, that's it for what the left and the right are saying,

which brings us to my take. As I've said many times before, economic news is where I often feel most out of my depth. I have seen actual economists be wrong so consistently and so often that having any faith in my own outlooks or predictions based simply on reading their work seems fanciful. Suffice it to say, I don't really know what is going to happen. I hope inflation comes down because the reality of what happens if it doesn't is ugly and terrifying. There seems to be widespread agreement that the Fed took a solid step here, though some believe it should have been even more shocking, that is, a higher rate increase. What I can confidently opine on is the politics of it. And they are bad, for Biden, for Democrats, for anyone who wants more funding for government projects. A month ago, Americans said inflation was the top issue facing the country. It has only gotten worse since then. What we're seeing in the

polling so far pretends a red wave coming in November's midterm elections. The how and why of inflation are probably not simple. Some combination of massive government relief bills under Biden and Trump and his administration's loose monetary policy paired with supply chain shocks on top of huge consumer savings during COVID-19, all spun up by Russia's war in Ukraine and lockdowns in China that have their own distinct economic impacts. Regardless of what you think, though, there are many millions of Americans who are too busy struggling to afford groceries and gas to be interested in the intricacies of how we got here, or even have time to parse the talking points. They're going to know that one party controls the White House and Congress

and view that party as responsible. On a personal note, I'm anxious. I run a small business with people on payroll. We make revenue on subscribers and ads in this podcast. People who are feeling the economic screws tightening may think twice about shelling out $50 a year to support a politics newsletter. Elderly Americans on fixed incomes are seeing inflation outpace their social security checks, even after the latest cost of living bump.

Kids coming out of college looking for work may struggle if we go from a tight labor market to a recession. It is, in simple terms, a tenuous time. Still, I'm holding out hope. Unemployment rates are still low and wage growth while being outpaced by inflation is happening. Those are good signs. In many sectors, it's still a great time to be looking for a job. Again, I'm no economist, but Jerome Powell seems like a competent leader supported by

people from across the political spectrum. Sometimes you have no option but to trust the folks and institutions in charge. My hope is they have enough experience and steel will to make the tough decisions that can guide us to the so-called soft landing, that is, slowing inflation without ushering in a major recession. But we could really use some strong signals in the monthly data. Here's to hoping they come soon. That's it for my take, which brings us to your questions answered.

This one is from Eric in Finlay, Ohio. He said, Today, the January 6th committee released a video of Representative Loudermilk giving a tour on January 5th where the people on the tour are taking photos. Was this a recon mission to storm the Capitol? And if so, what charges should be brought against Loudermilk? Okay, so I've seen this story going around. Yesterday, the January 6th committee released footage from the tour where tourists and Representative Barry Loudermilk are walking around and are taking pictures and video. The implication from news outlets and liberals on Twitter has been

that Loudermilk was leading some kind of reconnaissance tour of the Capitol building the day before January 6th. Let me be clear, I think that charge is ridiculous. For starters, there were about a dozen people on the tour. Only one of them is someone who is present at the Capitol on January 6th as far as we know, and that person has not been charged with any crime. Second, Loudermilk has already been cleared by the Capitol Police. You can read their statement in which they say they are trained to spot surveillance and reconnaissance, have reviewed the tape, and do not consider any of the activities we observed as suspicious, end quote. The Capitol Police have footage of them throughout their entire trip,

and note that at no time did the group appear in any tunnels that would have led them to the U.S. Capitol. Alexandria Ocasio-Cortez posted images from the surveillance footage saying Loudermilk lied when he said, I never gave a tour of the Capitol. But the images don't prove he was lying because they are from the part of the Cannon House office building that houses exhibits. The tour never entered the Capitol building. The January 6th committee is conflating two different areas and creating a tie between the people on Loudermilk's tour and insurrectionists that does not exist unless they are withholding additional evidence to that effect. When I pointed this out on Twitter, some people asked me why they were taking photos of entryways and staircases.

The photos they were taking were probably of exhibits that exist throughout the area they were touring. Others claimed there were, quote, no tours allowed. This was true of the Capitol building, but not true of the House office buildings, which are separate from the Capitol. I do not know where this rumor started. As Loudermilk himself has pointed out repeatedly, House leadership even ordered the gift shop to open on the 5th because there were so many visitors in D.C. that day. Unless there is some evidence we don't yet have, the entire thing smells to me like another conspiracy theory, the exact kind of conspiracy theory Democrats so often accuse Republicans of spreading. Allegations that Loudermilk was leading a recon tour would need to be backed by evidence that

any of the people on his tour committed a crime or passed on those images to someone else who organized or took part in the storming of the Capitol. There is zero evidence of that so far, and it's not as if the area they toured would have been much used strategically anyway. So that's where I land on that. All right, next up is a story that matters. Just weeks after reopening, Abbott Laboratories said that it has paused baby formula production at its plant in Sturgis, Michigan. Recent thunderstorms flooded part of the facilities, causing another setback for the company as it tries to help alleviate the nationwide baby formula shortage. Abbott said it has stopped production so it could assess damage from the storm and clean

the plant. The halt will delay distribution of its product by a few weeks, according to the company. The Wall Street Journal has the story. Next up is our numbers section. The current mortgage rates, the highest since 2008, are at 5.78%. The mortgage rates at the start of this year were 3.11%. The average price of a gallon of gasoline today is $5. The average price of a gallon of gasoline a year ago was $3.07. The average number of new COVID-19 cases over the last two weeks is 104,153. The number of military assistance installments the Biden administration has sent to Ukraine is now 12. The total worth of those installments is $5.6 billion.

Alright, and last but not least, our have a nice day section. When Brody Ritter came home from school last week, his older sister noticed that he had very few signatures in his yearbook. One of the signatures was his own. Two were from teachers and two were from classmates. That was it. Cassandra, his sister, said seeing it broke her heart and knowing that Brody, who is 12 years old, had struggled with bullying and being bullied by other kids in school, she decided to try to do something. Brody's mom posted photos of the blank yearbook page to raise awareness about bullying and as word spread, some older students in the school decided to step up and sign Brody's yearbook. In the days after, a swarm of older students came into Brody's class and signed his yearbook. He ended up collecting 100 signatures. Just seeing him light up,

it felt really good, one older student said. It was a small thing, but it made him so happy. The Washington Post has this uplifting story, and you can find a link to it in today's newsletter. All right, everybody, that is it for the podcast. As always, if you want to hear from us tomorrow, which is Friday, you need to subscribe. Readtangled.com slash membership. Don't forget to go do that.

Your subscription keeps this podcast rolling. And either way, we'll see you next week. Peace. Our newsletter is written by Isaac Saul, edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle's social media manager, Magdalena Bokova, who also helped create our logo. The podcast is edited by Trevor Eichhorn, and music for the podcast was produced by Diet75. For more from Tangle, subscribe to our newsletter or check out our content archives at www.readtangle.com. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, Thanks for watching!