Danielle DiMartino Booth on Fed's Focus: Inflation vs. Worker Wages

Inflation Trends and Fed Policy

• 💡 Shelter disinflation is a significant factor, with a Cleveland Fed metric showing year-over-year deflation when factored into market-based core PCE.
• ⚠️ This shelter disinflation is strong enough to overwhelm tariff-related inflation on goods.
• 📈 Services disinflation is also picking up, particularly in sectors like hotels and airlines, further pressuring inflation metrics.

Labor Market Perceptions

• 📉 While official data shows a flat layoff rate, consumer confidence indicates jobs are harder to find, with a significant increase in this perception since January.
• ⚠️ The speaker suggests that most working individuals would not agree with the assessment of a "solid" labor market, citing seven consecutive increases in the "jobs hard to get" gauge.
• ⚠️ This divergence suggests the US economy may already be in a recession.

Shifting the Fed's Focus

• 🎯 The Federal Reserve should shift its focus from its inflation mandate to the concerns of working men and women.
• 💰 Companies are experiencing margin squeezes, limiting their ability to pass on full input cost increases to consumers, which the Fed has evidence of.
• 📈 The speaker believes the 2% inflation target is attainable and that the Fed may even need to combat deflation, which is more dangerous than moderate inflation.

Deflationary Risks

• ⚠️ The primary danger is a "deflationary death spiral," which the Fed is ill-equipped to fight, unlike moderate inflation.
• 📉 Deflation makes debts more expensive, posing a significant economic threat.