Three Things I Think I Think – Transitory Stuff

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Here are some things I think I am thinking about:

“Transitory” inflation

Contrary to popular opinion, I am not the Direct of Communications at the Federal Reserve. I don’t even work for the Federal Reserve. I’m just a lowly asset manager who happens to oversee a big chunk of fixed income so I worry incessantly about inflation and interest rates. That led me to obsess about how the Fed actually works and so here I am constantly writing about how the Fed works and how they think about things. If I am being honest, I think the Fed is generally terrible at communicating things to the outside world. So, they end up being an easy target for pretty much anyone who wants to dunk on them.

Anyhow, the Fed loves using the term “transitory” to describe blips in inflation. But I’ll be blunt, I think this term is a really bad one. It implies that something is going to come and go. And inflation doesn’t really come and go. Inflation is pretty much always positive. This is massively oversimplified, but the basic reasoning for this, in a nutshell is:

  • We live in a credit based monetary system and so new money is almost always being created.
  • Aggregate demand is generally positive and supply doesn’t always keep up because resources are scarce and all that.

The result of this is that some moderate inflation is basically the price we pay for having developed an economy with a dynamic money supply (and no, fixed money supply systems do not and cannot work). The thing is, most of us notice when the price of a beer rises at our local bar. And we know, for a fact, that that price isn’t “transitory”. When that ice cold delicious Bud Light costs $5 we know that it’s going to cost $5 for at least the rest of our lives. In fact, we pretty much know that that Bud Light will cost more in the future. So, “transitory” sounds disingenuous at best and misleading at worst.

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Disclaimer: The content in this article is provided as general information only and should not be taken as investment advice. Article content shall not be construed as a recommendation ...

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