Plain English with Derek Thompson - Could the Fed Break the World Economy

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Today’s episode is about the Federal Reserve and the possibility that the feds actions into Rising interest rates.

Might accidentally wreck the global economy.


So, I was thinking about the best way into this particular episode, and a story occurred to me a story from my past.

When I was in my late teens, early twenties, I must confess that I used to drink a little bit more than I do today, and I got Got a lot of really, really bad hangovers and when I got a bad hangover, I would always do the same thing.


I would take the drug Excedrin and then if the first exception pill didn’t do anything, I would take another Excedrin and sometimes when that second Excedrin drug didn’t do anything.

I would take a third pill of Excedrin, then sometimes this prescription of taking Excedrin order to cure my hangovers work, really, really well.


But other times, I would start like shaking jittering having bad stomachaches, the side effects of the Excedrin would take hold before The Hangover itself had gone away.

And so, it ended up with the worst of Both Worlds.

A hangover a headache and all these negative side effects from the drug that I was taking in order to get rid of The Hangover and the headache and to a certain extent, I think that is what might be happening.


Might be happening with the Federal Reserve.

And the world economy.

There is a clear malady here, a clear hangover equivalent in u.s. economics its inflation and the FED has a clear drug of choice to get rid of that hangover.


Effect of inflation is rising, interest rates plus like, saying spooky things about how we won’t stop doing this until unemployment Rises a little bit.

But we’re starting to see.

Is negative side effects in credit markets, in emerging markets, in currency markets, in the housing market, all sorts of little things around the world seem to be breaking because of the federal reserve’s policy.


The negative side effects are taking hold even as the original inflation crisis isn’t necessarily going away yet.

And so, my big anxiety at the moment is what if we are making a 22-year old Derek error here?


What if in trying to fix the hangover of domestic inflation, we were accidentally screwing up the nervous system of the world economy.

So today’s guest is no stranger to metaphor.

Or analogy.

Her name is Kyla.

Scanlon Kyla has very, very quickly become one of my favorite economic.


Commentators, she is wickedly smart, creative, her analysis Blends memes tick-tocks, YouTube videos.

Essays, I really love the fact that she makes economic simple while holding onto the nuance and often she makes it funny as well.

You know, I think there’s a sense among a lot of people that I know who aren’t paid to cover economics, that this stuff is unreasonably complicated and relatedly.


Extremely Boring and that’s in part because I think a lot of financial commentary is written among insiders.

And by insiders, it’s just this mess of acronyms and confident shorthand.

It’s totally inscrutable to the outside world and Kyla is an expert in what I try to do with this show, which is to explain complicated ideas in simple ways without losing the Nuance.


That makes them complicated in the first place.

I’ve learned a lot from reading her and I hope you learn a lot from listening to her.

As always, your feedback is very welcome, please email me.

If you have any kind of commentary negative or positive it plain English.



I’m Derek Thompson.

This is plain English.


Tyler Scanlon, welcome to the podcast.

Hey, thanks for having me on before we talk about the news and the fed and Prospects of a global economic meltdown and all that fun stuff.

I actually want to talk a little bit about your style of economic analysis.


I really think you were unlike just about every other economic commentator, that I know, and follow, I think that the economic and finance media Community can be very insular, just lots of acronyms, lots of it.

Here, your memes and your you seem like a popularizer, your analysis has broad memes and short story quotations.


And it’s sprinkled through with all sorts of other pieces that just make it fun to read about economics.

And I’m just interested as a sort of a first-order question, like, what are you trying to do?

What are you trying to accomplish with this style of covering economic news?


So for me it’s all about making economics, more human-centric, Erick so everybody is an economic entity, but if you tell the average person that they’re like, no, I don’t like the economy, I have nothing to do with it.

I don’t like Finance.

I don’t like the stock market and that’s mostly because they haven’t been given the tools to understand properly everything that’s going on.


So my goal is to make it more accessible and the main way to do that is to make it more fun because it is fun like economics finance.

A lots of it is inherently goofy so there’s lots of pull from so the goal is just to help people understand what’s On in the world around them because they deserve it, right?


Like it’s crazy that we don’t have that accessibility right now.

You know I think it’s fairly stunning.

How little economics is is taught in?

Let’s say high schools.

I remember myself.

I took a couple macro classes in college when the Atlantic.

I don’t know that I’ve told the show and on told this story in the podcast when the Atlantic first offered me a writing job in 2009, it was a writing job with the economic team of the Atlantic and my first response was to To say absolutely not please don’t make me write about economics.


Like I love the news when I read the Washington Post at home, I read every single section of that newspaper except for the business section.

I throw it away because there’s too many numbers.

There’s too many three letter acronyms, there’s nothing that is legible to someone who just in is a generalist and I love the fact that you’re constantly trying to pierce that and say no.


Like the people who are in charge of the Machinery of the globe.


They’re not smarter than you.

They’re not more sophisticated than you.

They just have a different vocabulary.

It’s like if we can explain their vocabulary, in a human vocabulary, we can all participate in this game.


Yeah, this little thing and I invited like GDP would grow if more people understood the world around them.

Like there is like inherent benefits that would come from, people understanding like conspiracy theories, might decrease.

Like there’s so much value that would come from people just being like OK.

This is what the Federal Reserve does.

There’s not like secret door closed meetings that are like Big secret, like those are normal.


You just have to like, give people the tools, so they aren’t confused, you know, like that super important and you also, you know, you’re on Tick-Tock, you’re on YouTube, you have a newsletter with sub stack.

I think it’s also important that you try to hit people in different ways because some people learn through social media and some people learn through 45 minute podcast and some people, some of my closest friends hate Tick-Tock and hate podcasts through just read and so you’re trying to find them wherever they live.


And however, they consume media.

I think it’s a really wonderful part of your work as well.

So let’s put you to the test.

How would you explain in Kyla English?

What the FED is trying to accomplish right now?

And why they’re trying to accomplish it?



So right now, the FED is trying to battle inflation.

So I’m sure everybody knows inflation has been raging and the Federal Reserve has a dual Mandate of price stability.

So, managing inflation and maximum employment.

And right now, they are very much focused on price stability, sort of turning that back to normal and the main way that they do that is right now through raising rates.


They can also shrink their balance sheet but really it’s about raising rates because the whole goal with that is to make it more expensive for people to be alive, right?

So they stop demanding things and then hopefully, inflation would go back down.

So it’s kind of like, a roundabout way to tackle the inflation problem that we do have by making people stop demanding things.


So that way, the supply-side can sort of recover and get back to normal.

It’s so interesting.

You said that it’s not a great tool.

It’s sort of a weirdly indirect tool and I’m constantly astonished by how limited the feds toolkit.


Is this uh this is on the one hand, potentially the most powerful institution in the world, like it’s very rare that an institution has the ability to change prices and unemployment levels in the US.

But also have all these Domino effects that surrounded the world that crisscross the world and yet there In tool is interest rates.


And when you think what, wait, what is it, that the Federal Reserve wants to accomplish?

They want to bring down core inflation, right?

They want to bring down inflation, that doesn’t necessarily measure the prices of of energy and food.

One of the largest parts of core inflation is rent inflation shelter inflation.


It’s like okay, well if you raise interest rates that’s not immediately going to make people stop demanding shelter they’re still going to demand.


It’s just that raising interest rates might make mortgages more expensive that might slow.


Like the real estate industry that might raise unemployment and reduce demand and that might finally cash out in lower prices for housing, but it’s a fairly indirect thing like it’s sort of stunningly in directing.

It’s like it’s wild to me sometimes like how indirect the feds toolkit is I mean in your writing of this and you’re listening to people talk about this, are you sometimes just like taken aback by by how Indirect these, these tools are that the federal the Federal Reserve uses.


Yeah, I mean, you know, some people will say it’s Burning Down The House to kill a spider, right?

So like you have this one, it’s a big problem, but you’re going about it in a very like it’s slamming a hammer on to everything way and pretending that everything is a nail.

So using two analogies back to back there.


But yeah, I mean, it’s just super indirect way to solve what is mainly like supply-side issues, right?

So we are seeing Supply chains or covering Saying we’re seeing a relatively robust labor market in the FED is like, no, like none of this is okay.

We have to make sure that we get inflation back down right away, but as you’re saying, like, all that takes time to show up in the economy and there they look backwards instead of forwards to make policy.


Yeah, when you and I were exchanging messages before this show, I said I wanted to talk to you now because I felt like you and I are both circling the same analogy for the way that u.s. monetary policy was affecting National and Your National events and that metaphor is a domino effect.

And there are some Domino effects that we’re seeing with fed policy.


There are very straightforward like when the FED raises interest rates mortgage rates go up.

That’s obvious.

But there’s some Domino effects that we’re seeing that are very indirect.

Like I think that there is an we’re going to talk about it very soon like a chain of causality that connects the FED to a lot of the madness that we’re seeing in Emerging Markets where it the effect is like a little bit more.


ER in director, there’s lots of dominoes that that if that connect Domino one the FED fund rate funds rate goes up and you know Domino seven you know, Sri Lanka or Pakistan, has a, a currency crisis.

So what I want to talk about for the rest of the show is about these dominoes, starting with the most obvious of these dominoes, which is the US Labor Market.


As you said, the FED has this dual mandate to have price stabilization but also have low unemployment right now, it seems to be trying, it seems to be sacrificing low and I’m They’re trying to sacrifice known employment in order to stabilize prices.

In other words, I guess put in an instant, the language, the FED seems to be willing to risk higher unemployment, more joblessness in order to bring down inflation.


Why does it seem like the FED once workers to suffer in this way?

I mean they’re planning on it.

So they have their summary of economic projections and they’re expecting unemployment to take up.

Like that is part of the plan.

And the reason that they would want I think I don’t think they want workers to suffer and like that that’s just how it has to be.


Like it’s one of the unfortunate consequences of this policy that we talked about like being relatively roundabout way of fixing the issue.

So for them they’re like you know people are out of work.

That means they’re not going to be demanding things as much which inherently would push down inflation to companies would have to cut costs because of this.


And that also helps push down inflation.

So it’s just a Tivoli painful way to sort of push that that in fighting inflation stuff through through the economy.


So they want to soften the labor market.

Yeah, it’s ready to jump in there.

Are you surprised how much it doesn’t seem to be working?


Like no, the BLS just reported another scorcher for job growth.

If three hundred, fifteen thousand jobs, I believe are created.

I think over the last six months, an average of 300 to 400 thousand jobs have been created every single month.

That is a booming labor.


Market in the face of one of the fastest increases in the federal funds rate on record.

Are you surprised by the degree to which higher interest rates just do not seem to be cashing out in this explicit goal of softening, the labor market.


Yes well so I’m not necessarily you actually had a good tweet on this.

How it’s not impacting the labor-intensive domestic industry.

So if you look at construction mining utilities like they’re all getting wage gains but if you look at Tech and finance, They’re having layoffs, right?

So it’s sort of like two different labor markets right now because construction utilities mining, they all fired way too many people during the pandemic and there was a quote in the Wall Street Journal.


I think they said you can’t lay off what you don’t hire.

So it’s kind of like these companies.

Don’t have people that they can lay off, they don’t have people where they can force it, increase in the unemployment rate, like they have to have these people working and so that gets back to the point like, how far with the FED have to push the market to where, you know, these companies all the center, like, okay well what were you don’t need it?


People after all, you know, it gets that bad, so it’s concerning.


And, you know, B GD, p– and my share of employment.

The US isn’t dominated by sectors that are sometimes called rate-sensitive, right?

Like construction or manufacturing.


The US economy is fundamentally a Professional Services economy.

And when the BLS just came out with its report last month, they said that the notable job gains occurred in and I’m quoting right now from the federal government professional and The services Healthcare and Retail trade.


There’s not a very clear mechanism, by which higher interest rates immediately, reduce retail, trade employment, right?

It’s not like interest rates, go up and people immediately by less toilet paper.

It’s not like interest rates, go up and people immediately demand fewer marketing and Media Services and professional business services.


And just when interest rates go up, people don’t necessarily demand less health care so it’s in a weird way.

The FED is raising rates for the purpose of weakening a labor market.

That is booming in industries, that aren’t rate sensitive.


And that kind of scares me because it suggests that we’re going to have to take on a lot of pain for higher interest rates to really cash out in higher unemployment in the services.

I just talk or the sectors.

I talked about Healthcare retail, professional business services.


Are you thinking about things in the same way or you know, how do you see This connection between, you know, Rising rates and Rising unemployment in these sectors that aren’t rate-sensitive.

Yeah, I mean I think it is you can be tough.

Like you just have to push so much harder in order for that to fall through.


And the thing is like consumers are healthy ish.

Right now like savings have been rapidly depleted.

But there’s still a lot of savings because we were in lockdown for two years.

You know, and people are taking out more credit.

They’re like consumers are still willing to spend money.

Like retail sales came in a little bit stronger than expected the other week.



So you’re still seeing people willing to go out and take on, you know, these jobs that people are working.

So it’s tough and like one way that it could work out in terms of like a soft doing labor market, as we see, an increase in the labor force participation rate.

So more people start going back to work.


And that way, we would have to rely on layoffs, but rather just more people going into the labor force, that would be preferable.

So hopefully it end up being bad.

I’m really glad you mentioned that.

Just unpack that a little bit.

Why would more labor market participation Make a so-called soft Landing easier for the US economy.



Well, so you would see like, theoretically an increase in unemployment rate until those people get employed.

So that would enable the company’s been have to freeze wages as much because there’s more people to hire from.

There’s just a whole larger labor pool to pick from like right now.


Part of the problem is, there’s just not enough people to hire.

So if you have more people going into the labor force that fixes that part of it and then you wouldn’t have to rely on people getting fired.

But rather more people to choose from another Domino that I want to talk about is the US housing market.

You did a really great Tick-Tock video which I saw on your YouTube channel, explaining what you see happening in housing right now.


So, just take the stage here, tell me about the housing piece and what you’re fixated on in terms of the effect that higher interest rates are having on the US housing market.

Yeah, well it’s making a mess out of it so they can mortgage rates are up near seven percent.

I think they’re over.


Seven percent.

So affordability has decreased by one-third since the beginning of the year, so you can get like one third, the house that you would have been able to at the beginning of the year, then you can now and the disqualified.

You know, 18 million households for from qualifying, for four hundred thousand dollar mortgage.


Just this increase in mortgage rate so you’re seeing a lot of people not being able to even get a mortgage.

You’re seeing people not being able to get the houses that they want to get.

There’s a little bit of decline in home prices Redfin, titled it, the new Weird.

Like it’s just a very bizarre housing market because it’s still sort of a seller’s market but it’s increasingly becoming a buyers market.


So it’s just like a funky housing market and there’s just not there’s just not enough Supply at home.

Builders are freaking out because they’re like, man houses are so expensive.

It would be kind of crazy to build one because like who’s going to buy it right now with mortgage rates at 7%?

So you’re seeing bad have a drain on Supply to and then you’re also seeing like 32 million people have no mortgage at all.


So like, why would they sell their house?

They have no And they’re just gonna sit on the exactly money bags that they have.

So like you’re just seeing a huge constraint and supplies and then you’re also seeing just a bunch of price pressure because of what’s happening with mortgage rates because of what the FED is doing yet.

Tell me more about red Fins, New weird.


I mean the way that I think about what I think they were talking about when they when they said that the housing market is in this new era, a new weird.

It’s that on the one hand every so much of what you said makes it seem like the housing market should be deeply.

Deeply troubled.

Mortgage rates have gone up over 7%.


You have lots of people who can’t afford to get into the housing game, that suggests that housing prices should be really steeply falling, but they’re not falling in many, many places housing, sales prices are still going up on an annual basis.

How can both things be true at the same time?


Yeah, I mean, it’s just the constraint of Supply.

So, in that piece, Redfin highlights that like, a lot of people are just not moving, because they’ve locked in, you know, three percent mortgage rate like why?

You move, you don’t need to.

So there’s this not a lot of Supply hitting the markets.

So the supply that is on the markets, you know, buyers are going to have to be a little bit more receptive to what those prices are being offered.


I like when the FED raised by 75 basis points the other week, I think that same week home prices went up by one percent which is like that like that shouldn’t be like quite the case you know.

And so yeah it’s just funny.

It’s still a seller’s market, right?


Low inventory means that the sellers.



Have the power and switch.

It’s in a weird way.

Means that, you know, it’s the reason that prices are going up, arguably, has less to do with what’s happening last 18 months, and more to do with what’s happened in the last 20 years.

We just built, so few homes and especially so few single family homes in the last 20 years.


If there’s just not enough inventory, where people actually want to live Rising interest rates mean that a lot of people might be sitting on their homes.

That means there aren’t a lot of homes in the market.

It means, if you do want to buy a house, you still have to pay out the nose for that house.

Even Higher interest rates which is not a great environment at all.


For buyers, the third category that I want to talk to you about in terms of domino effects is the way that the feds Rising interest rate policy is leading to a stronger dollar.

That that’s creating a lot of problems in Emerging Markets.

Set the stage here for us.

Why are rising interest rates leading to a stronger dollar?


Yeah so when the FED raises interest rates, the dollar gets treated as a safe haven.

So people are like oh man, the dollar looks super good relative to other things.

Things like their Central Bank has it together compared to like Japan which is still doing elements of quantitative easing, China doing elements of quantitative.


Easing, Europe has a landlord.

So it’s kind of like the dollar looks pretty good in comparison to everything else.

So investors are going to go to that and also higher rates mean higher yields.

So people are going to demand more dollars to go into US dollar denominated assets.

So that’s sort of a double whammy for the US dollar.


Yeah, exactly.

Do you find it?

Very well, very, very efficiently.

Yeah, inflation is high all over the world so you have a lot of central Her, it can be rising the city, raising rates, but also it’s, you know, it’s it’s incredibly ironic that the u.s. perceiving problems in the US economy.


Raising rates in order to fix the problems in the US economy, end up strengthening the dollar.

And now I’m concerned about the way that a stronger dollar is going to cash out for a lot of Emerging Markets because if you know dollar priced energy is dollars, nominated energy is really expensive.


That means that you have trouble countries like Sri Lanka, In India Pakistan that are really really going to struggle because suddenly on top of everything else that’s happening in the world their energy prices are going to go up and up and up because of a strong dollar, more and more people.

Now it seems to me.

You got Paul Krugman is writing a column about this.


Adam Tuesday’s written about it.

Noah Smith has written about it.

Lots of people now see me writing about the fact that the world economy is dangerously close to Breaking, that’s the word that people are using the world economy is dangerously close to Breaking.

How do you Evaluate that claim.


What do you see is the most dangerous part of the FED?

Domino effect.

And do you think they’re sort of overstating their case?

I see the dollar is the most dangerous part, because it’s a wrecking ball as you just said.

So not only is energy denominated in dollars.

But so is debt for emerging market countries, a lot for a lot of them.


So that’s like a whole issue, like a debt crisis.

Going on, energy crisis, going on.

And then there’s this concept called the dollar Doom Loop that was coined by Cheap convexity that talks about a stronger dollar putting pressure on trade and Manufacturing and that creates slower economic growth.


So, the dollar is kind of like this accidental.

Little secret weapon that the Federal Reserve has and it’s creating so many issues like they’re trying to fix inflation and they created this like monster like Frankenstein’s monster and the back room that is causing a bunch of issues.


So I would definitely say like there’s to the point of like are things breaking.

The UN came out and was like, Hey, central banks.

Stop hiking rates because you’re causing a bunch of problems.

So it definitely seems like There’s a lot of stress fractures beginning to show in the global economy and I would just say it seems like, you know, to the point earlier the FED is taking a hammer to everything and not everything is a nail.


I want to actually just go one level deeper in the dollar Doom Loop because it’s such an interesting idea that I think could play a really big role over the next six months of global economics.

Tell me if you think that this explanation is is often anyway, putting all the domino pieces together.

Number one, you had the phenomenon of inflation in the US.


That lets number two, right rate?

Hikes that led number 32 rate hikes actually around the world which made a bunch of investors.

Want to pull their money out of other countries and put into US bonds because in a world where interest rates are rising and the threat of a recession is getting higher.


You want your money to be living in the safest house in a bad neighborhood and that is in US bonds, that leads the dollar to if you have to have dollars In order to buy you as ponds, that makes the dollar stronger, there’s more demand for dollars that makes other currencies relatively weaker, which means that if you are tricky, Sri Lanka, Pakistan, it becomes more expensive to buy the energy that you need.


In order to make your economy work, that means that you have less money left over for everything else.

That means that there’s a higher potential for recession, that means that people are more even more likely to want to put their dollars in a global recessionary environment in certain third, the global currencies in doll.

Dollars, which makes this Doom Loop sort of cycle over and over and over again?


Did I miss some aspect of the dollar Doom Loop or did I do it?

Okay, to sort of connecting some of the domino pieces there?

Well, I mean, I think also it puts pressure on domestic corporations, so it’s not just Emerging Market Nations.

That feel the brutal force of the US dollar.

It’s also companies based here in the United States that do business abroad.


So it’s kind of like, you know, it’s really tough for everybody, and that’s like a big part of the Doom Loop too.

The last Domino that I want to talk about is credit markets.

Yeah, I have to confess a certain amount of ignorance here.


I know basically nothing about credit markets, I am not a financial journalist.

But over the last few days, I’ve just been reading Non-Stop about how people are worried that.

The bank Credit Suisse is going to blow up that is going to potentially create another 2007-2008 kind of moment where the global financial markets become absolutely catastrophically thrown out of balance.


Let me start with a sort of the simple catastrophe question, are you concerned that we are in anything close to a global financial crisis moment, right now and question number two, what’s happening with Credit Suisse?


So okay, so we NF financial crisis and then credits.


He’s like there’s flashes flashing red bells everywhere, right?

Like if you look at investment grade debt, if you look at high yield debt.

So if you’re talking about credit markets here in the United States, like yields on those have increased.

So like there are concerns what I say.

Like, it’s financial crisis, worthy, probably not like, they’re not treating at really distressed levels, but things are starting to be like, okay.


Like whoa, everybody, things are going a little weird out here.

And then in terms of credit sweeties, I don’t know like that sort of came from one tweet over the weekend where this person was like, I know that at the bank is going to be insolvent soon and everyone was like, woah, its credit squeeze.

But if you look at something called credit, default swaps for Credit Suisse which is just like basically a way for investors to buy risk, it’s so to protect against default from the bonds that they do by unconscious piece or however they invest in it.


You can buy something called credit, default swaps for still make money.

Even if the company does default Oh, it’s going to price in an amount of default risk and you can calculate the implied probability of default from the spreads on the CBS and it’s less than 10% on for credit Suite.


So the market is not pricing and like a global catastrophe.

There’s definitely some flashing red bells within Credit.

Suisse all you’ve to do is go to the Wikipedia page and like look at the controversy section, but in terms of like them being a Lehman Brothers, know like that discounts the actual Lehman Brothers moment the banking.


This tree has changed substantially since then and also credit suisse’s already like in trouble because of what happened with our Caicos.

They already have higher Capital controls so it isn’t like a whole Lehman Brothers moment like back then, I was really young.

So I wasn’t around like a whole lot.


I was in elementary school that like like that, nobody really thought that Banks could blow up that big right?

But here like we are very, very aware that blinks can blow up.

So I would say it’s just like a different ring.

Regulatory environment, and it’s a different Market environment to what would you have to see?


To think that the FED had gone too far too fast?

I think that when you start seeing stress and credit markets, that’s a little bit worrying.

Like I think the 10-year.

So like basically what happens when the FED shrinks their balance sheet as they stopped buying bonds and that can push up yields to because there’s less people buying those bonds JPMorgan actually issued a note and they were like, we don’t know who’s going.


You buying bonds like we’re a little bit worried about that so I’d say like that’s a little bit concerning is like, what does happen in the bond market?

Stocks are noisy.

I would say but like what happens in credit markets is a pretty good signal for what’s going to go down because like, bonds are so sensitive.


Those Traders are so sensitive.

Those companies are so sensitive.

So it’s a like charging markets, you know, high yield markets, investment-grade markets, all of those things.

Those would probably tell us if the FED is going too fast, and then I think, if you see like a big pile up, And an Emerging Market Nation where they do have and as you’ve talked about, like it exacerbated problem because of how strong the dollar has gotten, that would be like, the FED going too far.


I want to tell you what, my concern is right now and it reflects something that I’ve already mentioned in this episode, I’m concerned, not only that the FED has a limited toolkit that it’s trying to solve problems that, it has very indirect Weaponry to solve, but also that it has A bad dashboard rent, inflation shelter, inflation is a huge part of the core inflation picture right now.


But if you look at Zillow and you look at apartment list and you look at Redfin and you ask their Chief Economist.

Do you see inflation for newly listed?

Rental units, declining, they’ll say, yes.

We’ve seen it for about 4 to 5 months.


We know for almost a fact that core CPI Trails.

That that’s right that that I don’t use too many acronyms and I want to violate the rule that I try to put at the top.

We know that rental inflation is measured by the government.


Lags these sort of Zillow apartment list inflation measures by about 6 months which means that we have a great deal of certainty that like two three and a half months from now rent.

Inflation is going to go down but the FED is treating core.


Inflation as if we don’t know that it’s got this backward-looking dashboard.

So I’m concerned that the combination of a bad dashboard and a limited tool kit might lead reasonable Central Bankers into raising rates too fast for too long in a way that can scramble and break lots of stuff that no one actually wants to break toward extent.


Do you share my anxiety or not?

Share it.


I agree.

Yeah, I would say you’re seeing recovery and rents for sure and like the whole like CPR.

Rinse are, you know, 1/3 of how we measure inflation shelter costs are.

So that’s like a huge component of it.


So like when that does begin to slow down, it’ll slow down inflation metrics, and we’ve already seen a huge recovery and energy.

We’ve seen Supply chains, almost start to have like that bullwhip effect, where it’s like, okay we had huge problems, but now companies have so much inventory that’s going to be hugely deflationary.



So there’s like, yeah, there’s all these things that are pointing to inflation, really beginning to slow and it in the FED, is pretty focused on the metrics that are in the past, right?

I agree that it’s like, the FED has like, an extremely high fidelity, 4K rearview mirror, like he can see with exquisite Clarity the conditions of the economy from like, you know, six weeks ago to like three months ago.


But there are higher frequency data sources that if they paid equal attention to those, they might have a different impression of inflation.

Look, I might be wrong, I’m not a central Banker.

I just said, like, what was it 35 minutes ago that my reaction to a business news, when I was 22 years old, which to throw away the business section?


So I could read the a section sports section.

So I’m not saying that anyone should necessarily listen to me.

I’m I just want to, I want to put my anxiety on the record now.

Now because like, it is a, this is my anxiety.

I’m afraid that the FED has a great backward-looking mirror.


Yeah, I see a lot of people agree with you and like, you know, Brainerd give Leo Brainerd.

Who is the vice chair of the FED?

She gave a speech where she highlighted that like okay?

Yeah, like things are showing up.

We noticed that there are cracks within Financial stability.


We see some potential liquidity issues.

We see some debt sustainability problems but because inflation So high, like we cannot return to economy, accommodative monetary policy right now.

So easy monetary policy.

We have to prove our credibility because to the point I made earlier about the FED having this toolkit of raising rates, during the balance sheet excetera, they also have to have their credibility.


So if the FED sort of pivots to quickly in this market environment, people are going to be like oh they’re always going to be pivoting, don’t trust them, don’t trust them and that’s honestly half of their power is them just speaking.

That’s why we have so many fed speakers every week if they’re not in a blackout.

Added is because what they say, impacts markets and if they lose that that’s a huge thing for them to lose.


So I think that’s also a big component of it and maybe why they’re not paying attention to what you’ve accurately highlighted to be a big issue is because they’re trying to preserve that to.

And this is, this is a great place to land for the last question because my first observation was that you’re a really talented multimedia.


Communicator of complex, economic ideas who tries to To meet the public where they are, not just on sub stack, but also on YouTube on Tik-Tok where people’s eyeballs and ears actually live.

And it’s interesting to think that, in a way the FED is powerful.


As this blunt tool of interest rates, is the Fed is kind of an influencer.

Like, the FED is, I’m not like it, like a jokey way like they that understands that the way that they talk, and even maybe the way that they look, Look when they talk because they’re on camera and we’re in an era televisual, Society is a market moving mechanism.


And that’s just a fascinating thing to think that like, you can make central banks, seem complicated and spooky.

And you can do like, a 405 seminars style thing on like how Rising federal funds rates can affect global market currency crises, or you can kind of be like Marshall mcluhan about it.

And be like, this is fundamentally about the FED being an influencer.


And right now, that is being kind of a confusing influencer and they’re not necessarily getting exactly what they want at the moment that they wanted and people are just kind of looking around and shrugging and saying, are these people going to accidentally break the world?

Yeah, yeah.

Actually tweeted about the FED being an influencer one.


So really, I didn’t realize that I stole your treat.

I think it’s really true and I’m glad you said it because like that’s kind of what’s going on.

Is like they have these, you know, it’s a wild to me like the FED meetings have become In certain quarters, it’s sort of like Super Bowl Madness.


Like people are like well what are they going to say?

What are they going to do?

You have them working with different news, outlets to send out information beforehand, so they don’t spook the markets, it’s really wild.

And, you know, when the FED when people live tweet the FED meetings Like Walter Bloomberg which is a Twitter account that always tweets out Bloomberg headlines.


It gets hundreds of retweets what they say.

So it’s some ya there.

So we will be an influencer and their credibility is what they’re really focused on right now.

It is with a focused on and in a way I wish they leaned into it a little bit more like If the Fed understood that they were the monetary Kardashian of the global economy and they took that job seriously.


Like I’m making a joke, but I’m also like being serious.


As you are, when you say that, you know, fed minutes, which is the, the essentially, the transcript of fed meetings.

It’s a Super Bowl event.

Because when people read them, they gather about on Twitter and or other social networks, and And talk about it and gossip about it, write articles about it, it’s a massive event.


They should take this responsibility, very seriously.

I think and, and recognize just how powerful their words are and and understand that that their information in a way is just as powerful as their interest rates, Kyla, Scanlon.

Thank you so much.

This is a blast.

We’ll have you back very soon.

Thanks for having me.


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