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📈 📉 Macro / Headlines / Trends
Inflation
Unemployment fell to 3.5%, causing markets to drop on fears of more aggressive rate hikes from the Fed, reinforcing the narrative that inflation worse (and more stubborn) than originally thought:
A thread about GDP revisions: it's not good. We have 4 takeaways. 1) Economy is more overheated last year than thought. Meaning: Fed will need to engineer more sustained period of below-trend growth to close output gap (1/4). pic.twitter.com/NViQY2HNmj
— Anna Wong (@AnnaEconomist) September 29, 2022
Where did we get the 2% the Inflation Target Anyway?
From New Zealand. The full story illustrates what a "small world" central banking can be.
Concern is mounting that the Fed's zeal to hit its 2% inflation target will cause it to overcorrect, and even Fed officials seem to be diverging in their views on how to proceed. As Adam Tooze worries, Fed policymakers are driving a polycrisis that may ultimately burn bridges with nations deeply impacted by the strong dollar - nations who have to date enabled the US dollar's status as the world's reserve currency.
The Economist sanguinely predicts policymakers will abandon the 2% target. Others question the validity of the 2% inflation target as this FT piece illustrates (with helpful context on why the target is so problematic).
Enter the new (not so new) buzzphrase "Macro Regime Change"...