Great work! I like the balanced discussion: everyone who dunks on central bankers and forecasters for having gotten it so wrong just proves how little he knows about the complexity of it all.
Worse case would be that the Fed tightening spills over internationally with a stronger USD that kills supply faster than domestic demand. It’d keep inflation high and continued tightening.
A while back I looked for papers on the forecasting skill of economists. The results didn’t look great. If everything was ticking along fine and GDP growth was 1-2% then the economists' predictions were pretty good. Once it started deviating the forecasts were terrible.
People, governments want predictions of the near future, but maybe we don’t have any that can be distinguished from guesswork and feelings?
Well written, thanks. I guess the key question now is given central bank models have proven themselves inadequate for the task of guiding monetary policy, are they going to consider changing them?
Hi Jason! Yes, I am just taking the peak prime age epop read from the late 90s as the minimum for full employment, but you should read this piece (if you haven't already!) to get a better understanding of my reasoning here.
“But in a similar vein to how the Federal Reserve ignored some of the signs of of elevated inflation last year they are now ignoring some of the signs of elevated recession risks this year.” Really? I don’t think they are ignoring it, its pretty clear ONLY a recession will liquidate the current inflation surge, and Powell & co. understand this but cannot for obvious political reasons say it.
Thank you for the informative comment! I agree, the economics is hard (although I think a world with less fiscal support is one with lower growth in both Mexico and the US)
And yes, I am going for very similar vibes as The Economist! Glad someone appreciates it haha.
Great work! I like the balanced discussion: everyone who dunks on central bankers and forecasters for having gotten it so wrong just proves how little he knows about the complexity of it all.
Thank you! I was really trying to capture all the nuance of the situation, glad to know it came across as intended!
Worse case would be that the Fed tightening spills over internationally with a stronger USD that kills supply faster than domestic demand. It’d keep inflation high and continued tightening.
Yeah nice work Joey. Great to see you working out where you may have got it wrong. Not a lot of others do!
A while back I looked for papers on the forecasting skill of economists. The results didn’t look great. If everything was ticking along fine and GDP growth was 1-2% then the economists' predictions were pretty good. Once it started deviating the forecasts were terrible.
People, governments want predictions of the near future, but maybe we don’t have any that can be distinguished from guesswork and feelings?
Exactly right! Global pandemic shutdown & fiscal/monetary stimulus "unprecedented"! Not a "normal" business cycle!!
Inflation coming down already
Thank you!
Well written, thanks. I guess the key question now is given central bank models have proven themselves inadequate for the task of guiding monetary policy, are they going to consider changing them?
This is actually the topic of a future piece I hope to (eventually!) write
Hi Joey,
Can I ask where you got the "Lowest possible estimate" for "Prime-age Employment-population" ratio of ~82%?
Is it literally just because that's where it peaked? (Looking at FRED it hit 81.9% at the tech bubble peak)
Trying to figure out if there's some other calculation going on.
Thanks,
Jason
Hi Jason! Yes, I am just taking the peak prime age epop read from the late 90s as the minimum for full employment, but you should read this piece (if you haven't already!) to get a better understanding of my reasoning here.
https://apricitas.substack.com/p/we-have-a-chance-to-end-americas?s=w
Thanks very much, will do!
“But in a similar vein to how the Federal Reserve ignored some of the signs of of elevated inflation last year they are now ignoring some of the signs of elevated recession risks this year.” Really? I don’t think they are ignoring it, its pretty clear ONLY a recession will liquidate the current inflation surge, and Powell & co. understand this but cannot for obvious political reasons say it.
Again good work and a candid attempt to explain the mystery of inflation this time round.
Thank you!
Thank you for the informative comment! I agree, the economics is hard (although I think a world with less fiscal support is one with lower growth in both Mexico and the US)
And yes, I am going for very similar vibes as The Economist! Glad someone appreciates it haha.