Owatonna, Minnesota Correspondent — The question has largely been answered since it was drafted, which is worth saying plainly.
The Chairman retired the word transitory at the end of November. The November print came in at six point eight percent, the highest in forty years. The Fed accelerated the taper in December and signaled three increases next year.
So the argument is no longer whether it persists. It’s how much of it is supply and how much is demand, because the answer determines whether tightening helps or just costs employment.
My read is that both are operating and the demand share is larger than the official line admitted for most of this year.
Clermont, Florida Correspondent — We’re well past base effects and we have been since spring.
The Florida version is housing. Rents here have risen at rates I’ve never seen in twenty years of advising businesses, driven by in-migration meeting a supply that didn’t move. Shelter is a third of the index and it enters slowly, which means a good deal of what’s already happened hasn’t shown up yet.
That’s the mechanical reason to expect persistence into next year regardless of what happens to used cars and freight.
Sydney, Australia Correspondent — Large fiscal expansion plus constrained supply plus accommodative money is a recognizable combination and the outcome is not mysterious.
What I’d add is comparative. Australian inflation is running well below yours and our fiscal support was proportionally similar. The difference is composition. We spent through a wage subsidy that kept people attached to employers rather than through direct transfers, and our savings went into housing rather than into goods.
That suggests the American problem is partly about the form of the support rather than only the amount, which matters for what you do next.
Myrtle Beach, South Carolina Correspondent — Some of it fades and some of it doesn’t, and I’d stop pretending anyone knows the split.
What I see locally is a wage reset that isn’t reversing. Starting pay in hospitality here went up substantially this year and nobody is going to cut it back, because the labor didn’t return at the old number.
That’s a permanent shift in a cost that gets passed through. Call that what you like. It doesn’t unwind when the ports clear.
Orange County, California Correspondent — The asset side deserves attention because it’s where the policy actually landed hardest.
Home prices nationally rose about twenty percent this year. That doesn’t appear in the inflation figure directly, but it’s the most consequential price change most households experienced, and it was substantially a product of rates.
So when people say the response was well designed, I’d ask who it transferred wealth to. The answer is people who already owned assets, and the bill is arriving as rent for people who don’t.
Novi, Michigan Correspondent — From the manufacturing side I’d separate two things being blended.
Semiconductor shortage is not a monetary phenomenon. We lost production this year because of an allocation problem in an industry that runs at capacity, and no interest rate fixes it.
Freight, labor, and materials are a different story and those do respond to demand. Steel, resins, and wages have all moved beyond anything I’d attribute to bottlenecks.
Tightening will hit the second and not the first, which means the cost of the correction lands on the part that was arguably working.
Dayton, Ohio Correspondent — Accommodative policy and large deficits coexist while growth is weak. Once demand recovers, the arrangement breaks.
We’re at the break. The uncomfortable part is that the Fed is now tightening into a supply problem it can’t solve, which means the tool available reduces demand until prices give.
That’s a recession mechanism described politely. I’d rather people said so.
Bismarck, North Dakota Correspondent — Input costs out here have moved more than the national figure suggests. Fertilizer has roughly doubled and diesel is up substantially, and both of those set next year’s planting decisions right now.
Farm credit is where I’d watch this land. Operations that expanded on cheap money are about to refinance into a different rate with input costs that don’t care.
The national conversation is about used cars. Ours is about whether an operation that penciled in 2020 still pencils in 2023.
Las Vegas, Nevada Correspondent — Transitory was a hope in a suit and it’s been retired by the man who coined it.
We pushed demand while supply was still broken and then argued about the adjective for a year.
The construction bid here tells the story better than any index. What I could build a room for eighteen months ago and what I can build it for now aren’t in the same range, and none of that is coming back down.
Long Island, New York Correspondent — Assessments and grocery bills don’t read a press conference.
The policy question now is different from the one the summer argued about. The larger spending bill collapsed a few days ago when a member of the majority’s own caucus declined it, and the stated reason was inflation.
So the fiscal side has effectively resolved itself, without a vote, through arithmetic. Whatever anybody thinks of the outcome, that’s the constraint operating.
Tyler, Texas Correspondent — Parts, labor, freight. Those aren’t sentiments.
I write commercial coverage and I’ve repriced most of my book this year, because replacement cost on a building went up faster than any underwriting model contemplated. A policy written at 2019 values on a 2021 structure is underinsured and the client doesn’t know it.
That’s the quiet version of this. It doesn’t show up as a headline. It shows up when somebody has a fire and discovers the coverage was calculated in a different economy.
Cheyenne, Wyoming Correspondent — Too much money against too few goods produces a price. That isn’t a theory.
Temporary only if the money slows. It has now, partly by choice and partly by a senator saying no.
Plan for the price rather than for the adjective.
