David Weston, Stephanie Kelton, Stony Brook University discussed on Balance of Power


This is balance of power on Bloomberg television and radio. I'm David Weston. We got those much anticipated CPI numbers this morning for the last month in the United States and attended to confirm apparently what we thought we'd been seeing in recent months, which is actually the pace of inflation is actually ameliorating. To take us through it though, from an economics point of view, we welcome Stephanie kelton. She's Professor of economics and public policy at stony brook university. So professor, thanks so much for being with us. You're an economist. I'm not. So you tell me what I should look at in these numbers. Well, a big thing to look at, David, is the trend. I mean, it's not just December. We are building a nice trend with our what we are seeing is continued deceleration and inflation, inflation continues to step down. It's exactly what we want to see. This report, in fact, came in precisely in line with market expectations. I mean, the market just nailed it on headline and on core, the monthly numbers, and this was a very good report. I saw it in December. We actually had deflation. So headlines, CPI came down, a tenth of a percentage point. So we're seeing all of the positive signs that we wanted to see. It would have been nice if it had surprised to the upside, meaning that we had even more rapid deceleration than the market was anticipating. We didn't get that. But that's okay. This is good news, especially coming on the heels of last week's job report, which delivered more good news about the economy. So I don't want to look a gift horse in the mouth if that's what this is at the same time. Let's look at some of the constituent parts of it because as I understand it, for example, a lot of what held back the inflation numbers was used car prices and vehicle prices coming down. On the other hand, shelter costs continue to accelerate at a rate way above 2%. Is that correct? And if so should we be concerned about it? It's correct. And yet there's more good news if you don't look in the rearview mirror, but instead look through the meter, the windshield in front of us, I guess, to stick with the car analogy. So it is true that shelter costs remain elevated. So 8 tenths of a percent in the December report. But it is also the case that in real time, we know that rents are coming down very sharply. All across the country. And so we know that that gets fed into the inflation indices with a lag. And so I think that this year what the expectation is is that eventually those month over month rental prices coming down will start showing up in the CPI report. And then we're going to see a further whooshing down of inflation as shelter costs come in lower. Professor take all of this and put it in your economics machine there at stony brook and tell me what this says to the fed. What is the fed's likely reaction? What should it be to these numbers? Such important and quite different questions. So what should it be telling the fed? I think that there are neon signs. David, they're flashing their bright and they're everywhere. And they should be saying to the fed, you've done enough, right? There is not a strong case for further rate hikes, whether you look at wage inflation that continues to decelerate rents, which we just talked about, whether you're looking at core, excluding shelter, which was down 1% in December, unemployment sitting at a 50 year low while all of this is happening in the background and inflation coming down. You can look at consumer inflation expectations, break evens. I mean, the evidence supply chain indices easing, there are signs everywhere flashing to us that inflation is on the downward trajectory that peak inflation happened in June of last year. And that if we don't push things too far, we stand a very real chance of orchestrating what a lot of people thought was going to be virtually impossible. And that is that soft landing. One last one here. It's a big topic, and we should have more of the one discussion about it. But that is, the debt and deficit situation, which appears to be pushing at least some Republicans in the House to the brink of maybe a default, not raising the debt ceiling. Do we need a debt ceiling crisis in order to address the debt and the deficit? And should we be concerned about those issues? Well, we certainly don't need a crisis. This is pretty scary stuff. And I think that with each passing year, it starts to feel scarier and less like just, you know, the brinkmanship that we all sort of sit back and say, oh, here we go again. And we all know that in the final hour, Congress musters the votes to raise the debt ceiling. And we avoid, you know, a global catastrophe. What's scary is that I'm not so sure that we can sort of sit back and rest on things unfolding the way they have historically. This is a very different Congress. And it wouldn't take all that many members to really take us to the brink in a very serious way. So I certainly hope that doesn't happen. That was not my base case. I think that when push comes to shove, you know, people will do the right thing. And that's what I expect will happen this time, but at what cost. I mean, the deals that could be struck could exact a pretty heavy price on various programs. We saw in the past with the fiscal cliff and the sequester, these are across the board spending cuts that hit the economy very hard, held back the recovery for a period of years. So we'll have to wait and see. But I do think that in the end, we'll see the debt ceiling limit increase one way or another. For sure, it's always such a pleasure to have you with us in very helpful. That's Stephanie kelton, professor at stony brook university. Still

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