So I got a haircut at a local shop in October. $18. After a winter in SC I returned to MI in April. Got a haircut at the same local shop. $21. Yesterday I returned for another haircut. $23. I know the owner and asked her about the increases. She rattled off a laundry list. Rent. Insurance. Property taxes. Electricity. Loss of stylists to other shops paying more. She claims she’s not making any more money than she used to, but the escalation in her costs of owning the business have been relentless for 5 years.
I would also note that in 2019 the haircut was $9. And when they raised it to $10 in 2020 they had signs on the wall apologizing and explaining that prices had been the same since 2015. Today there are no signs.
On Sunday my wife came home with a box of Melita Bamboo coffee filters. $4. Still $4 it said right in the box. I used the last filter in the old box. Same box. Still $4 it said on the box. That’s nice I thought. Until I noticed that the old box contained 100 filters and the new box contained 80. I’m not that good at math, but that’s not a 2% increase.
Inflation is not 2%. Or 3%. Or even 5%. It’s 8%. Or 10%. Or worse. Powell knows this. You should know it too. Most likely you do, but you pretend.
CPI is a total fabrication. It does not reflect in any way shape or form the items, services and things (like shelter, insurance and medical care) that most people are forced to fund, just to stay alive.
Rates need to go up. Capital needs to be scarce and costly. Zombie companies, over priced real estate, the stock and crypto markets all need massive corrections. You don’t rebuild an economy or a country by blowing a bigger bubble.
Sure, maybe that 15,000 dollar Viking stove your wife has her eye on costs the same as last year. But the pound of ground beef sure doesn’t.
Something clearly is rotten, but curious why you ascribe it to the Fed?? I would say the executive branch is where clear rotten behavior is happening. If things are wrong at the Fed they are clearly the doings of imperfect people doing their best (from what I've observed). Nefarious behavior though from the executive. It boggles my mind this is not obvious.
Usually love your stuff Oren, but this is oddly offbase
I belly laughed out loud reading Oren’s concern over politicization of the fed. Maybe he should slip a note to Don-the leader of his “new” right. After appointing Powell, Don now regularly belittles and threatens to fire him. Predictably, Oren rides to the rescue of his taco-loving dear leader. In any event, Oren and Don’s true view on inflation and interest rates is best understood by the record deficits contained in the signature legislative achievement of the “new” right- the BBB. The “new” right establishment also gave us Don’s first term record setting debt. Actions speak louder than words. But hey, Oren has learned from JD and Little Marco that intellectual honesty is irrelevant in the MAGAverse, all ya gotta do is sell your soul…
What remarkable timing: "Consumer prices rose 2.7% in June from a year earlier, the Labor Department said Tuesday, faster than May’s increase of 2.4%."
I'm typically a big fan of Matt Stoller, but for what it's worth, Matt Stoller's Wikipedia page says "Stoller is an advisor of American Compass, a conservative think tank established by Oren Cass".
I did not know that Stoller was an adviser. It makes sense since Cass often advocates for competition. However, many policies are still too subservient to Wall Street and the investor class. For that reason, I read Am. Compass with a grain of salt.
An absurdity from Oren's post. His sub-headline is "playing politics with tariff policy is no way to run a central bank". What about it being a way to run a country? Any thoughts on Don's 50% tariff on Brazil based on his unhappiness with their prosecution of his fellow insurrectionist? I guess that form of politicization of tariff policy is right up Oren's alley...
The Fed has to respond the things outside of its control (like the war in Ukraine) as well as Tariffs and other global events. The issue is that unlike the GFC, Covid and the war in Ukraine which to a great extend had boundaries as to what could and could not happen, absolutely no one knows what the TACO commander in Chief will do next. His unpredicatability diffuses down to the wide range of responses by big companies due to his unpredictability. For better or worse, Putin's predicability (even with the terrible human cost) is easier to manage from a financial system perspective than Trump. This does not even count the push he is making for more crypto that enables criminal enterprises and compromises the intergrity of our financial system.
Thanks, Oren. It is becoming clear to me that Powell and the fed are exceeding their remit. I am not a Trump supporter and I have no thoughts about who should replace Powell. But, I can see political motivations as clearly as anyone, and Powell is acting politically. Or, if not politically, he is deliberately (I can't believe mistakenly) confounding the possible effects of tariffs. As you point out, the data does not support him. If anything, it indicates there is a case for lowering interest rates, or at least saying the fed is considering it which is enough to affect markets.
Your point about a carbon tax is spot on. I don't recall anyone warning of the dire inflationary consequences of a carbon tax. I don't recall the fed issuing statements or testimony about the inflationary impact it would have on the economy.
What does the data actually say, Mr. Powell? Act on that. Or, don't! But, admitting the data does not look like you expected it to - but it will soon! trust him! - and then saying the non-evident effects of tariffs are steering your policy position makes you increasingly look like you are putting your thumb on the political scale.
Thank you for the post. If I understand it correctly, tariffs may raise prices but do not cause inflation. Inflation is a monetary disorder, tariff-induced higher prices are a real economy disorder. But what about the mimetic effects? When people expect prices to rise whether from tariffs or from some other cause, as many do, then price-setters (sometimes called monopolists, sometimes price leaders, but whatever) tend to take advantage of the expectation and raise prices--which is inflation. How, in a period of differential rising prices (albeit tariff-induced), do we keep the opportunists from raising their prices, too, simply because they can?
“Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It signifies a reduction in the purchasing power of money, meaning each unit of currency buys fewer goods and services. Essentially, inflation means things generally cost more than they used to”
Tax rises in general aren’t inflationary however, quite simply, if the cost of a product made abroad is $50, and you slap 50% tariffs, the cost at the till is now $75. And if there is no production capability in the U.S., then there’s no possible substitutes, and consumers have to pay more… it is very simple.
Also, If, as consequence, importers - such as retailers - stop importing goods because of the additional costs. Scarcity is created, because, again there is no U.S. production and substitutes. Creating - you guessed it - inflation.
NB: Consumer prices rose 2.7% in the year to June, up from 2.4% the previous month, with prices rising at the fastest pace since February
Trade from China was down 34% in May compared to May 2024.
There is a persistent — and arguably misguided — tendency to conflate tariffs with inflation. But tariffs, like VAT or GST, are ultimately taxes. And once we reframe them as such, their role in inflation becomes less clear-cut, and current central bank thinking begins to look increasingly muddled.
When VAT or GST is introduced, few economists would argue it constitutes sustained inflation. It may cause a one-time jump in price levels, but inflation, properly defined, is a sustained increase in prices and price expectations. If a tariff were inflationary in the way some suggest, then removing it should be deflationary — a claim rarely made with any conviction.
Indeed, lowering a consumption tax should, if anything, be inflationary in the medium term. Consumers with more disposable income tend to spend more. And when demand rises faster than supply can adjust, prices increase. This is Economics 101.
What tariffs do, in effect, is shift income from consumers and importers to the government — just as any tax does. The key macroeconomic risk they pose is not inflation, but demand destruction. Tariffs raise the cost of imported goods, which can weigh on household consumption and corporate margins, potentially triggering a broader economic slowdown.
This is the real danger — not a wage-price spiral, but the chilling effect of policy-induced cost pressures. And it is here that central banks, particularly the Federal Reserve, may be misreading the moment.
With core inflation falling and forward expectations well-anchored, the Fed has scope to act. The greater threat lies not in a re-acceleration of prices but in rising unemployment and weakening demand. If that’s where the cycle is heading, rates will need to come down anyway. Why wait?
Powell is just one of the Federal Reserves governors. Rightly or wrongly, they believe the current administration’s policy, or lack thereof, on tariffs is inflationary. Why shouldn’t they? The price of the goods subject to tariffs rises, as will the price of at least some goods produced here. For example, if there is a 20% - 40% tariff on steel and U.S. steel production is insufficient to meet demand, the effect is inflationary until our steel industry can expand production. If the administration had a coherent policy, maybe the Fed would lower interest rates, which itself can be in the long run inflationary.
So I got a haircut at a local shop in October. $18. After a winter in SC I returned to MI in April. Got a haircut at the same local shop. $21. Yesterday I returned for another haircut. $23. I know the owner and asked her about the increases. She rattled off a laundry list. Rent. Insurance. Property taxes. Electricity. Loss of stylists to other shops paying more. She claims she’s not making any more money than she used to, but the escalation in her costs of owning the business have been relentless for 5 years.
I would also note that in 2019 the haircut was $9. And when they raised it to $10 in 2020 they had signs on the wall apologizing and explaining that prices had been the same since 2015. Today there are no signs.
On Sunday my wife came home with a box of Melita Bamboo coffee filters. $4. Still $4 it said right in the box. I used the last filter in the old box. Same box. Still $4 it said on the box. That’s nice I thought. Until I noticed that the old box contained 100 filters and the new box contained 80. I’m not that good at math, but that’s not a 2% increase.
Inflation is not 2%. Or 3%. Or even 5%. It’s 8%. Or 10%. Or worse. Powell knows this. You should know it too. Most likely you do, but you pretend.
CPI is a total fabrication. It does not reflect in any way shape or form the items, services and things (like shelter, insurance and medical care) that most people are forced to fund, just to stay alive.
Rates need to go up. Capital needs to be scarce and costly. Zombie companies, over priced real estate, the stock and crypto markets all need massive corrections. You don’t rebuild an economy or a country by blowing a bigger bubble.
Sure, maybe that 15,000 dollar Viking stove your wife has her eye on costs the same as last year. But the pound of ground beef sure doesn’t.
Something clearly is rotten, but curious why you ascribe it to the Fed?? I would say the executive branch is where clear rotten behavior is happening. If things are wrong at the Fed they are clearly the doings of imperfect people doing their best (from what I've observed). Nefarious behavior though from the executive. It boggles my mind this is not obvious.
Usually love your stuff Oren, but this is oddly offbase
I belly laughed out loud reading Oren’s concern over politicization of the fed. Maybe he should slip a note to Don-the leader of his “new” right. After appointing Powell, Don now regularly belittles and threatens to fire him. Predictably, Oren rides to the rescue of his taco-loving dear leader. In any event, Oren and Don’s true view on inflation and interest rates is best understood by the record deficits contained in the signature legislative achievement of the “new” right- the BBB. The “new” right establishment also gave us Don’s first term record setting debt. Actions speak louder than words. But hey, Oren has learned from JD and Little Marco that intellectual honesty is irrelevant in the MAGAverse, all ya gotta do is sell your soul…
This article is nonsense. Is Oren just a shill for Trump?
Yes
Well, he does have a relationship with Vance that might be coloring his logic. Something sure is.
What remarkable timing: "Consumer prices rose 2.7% in June from a year earlier, the Labor Department said Tuesday, faster than May’s increase of 2.4%."
https://www.wsj.com/economy/inflation-hit-2-7-in-june-in-line-with-expectations-8f92a8cd
Matt Stoller makes an interesting case for bringing the Fed back under political control and away from the exclusive control of Wall Street. https://www.thebignewsletter.com/p/federal-reserve-independence-is-bad
I'm typically a big fan of Matt Stoller, but for what it's worth, Matt Stoller's Wikipedia page says "Stoller is an advisor of American Compass, a conservative think tank established by Oren Cass".
https://en.wikipedia.org/wiki/Matt_Stoller
I did not know that Stoller was an adviser. It makes sense since Cass often advocates for competition. However, many policies are still too subservient to Wall Street and the investor class. For that reason, I read Am. Compass with a grain of salt.
An absurdity from Oren's post. His sub-headline is "playing politics with tariff policy is no way to run a central bank". What about it being a way to run a country? Any thoughts on Don's 50% tariff on Brazil based on his unhappiness with their prosecution of his fellow insurrectionist? I guess that form of politicization of tariff policy is right up Oren's alley...
And how would the inflation look like if USD was not depreciating for the past 4 months? Did you miss that point on purpose?
The Fed has to respond the things outside of its control (like the war in Ukraine) as well as Tariffs and other global events. The issue is that unlike the GFC, Covid and the war in Ukraine which to a great extend had boundaries as to what could and could not happen, absolutely no one knows what the TACO commander in Chief will do next. His unpredicatability diffuses down to the wide range of responses by big companies due to his unpredictability. For better or worse, Putin's predicability (even with the terrible human cost) is easier to manage from a financial system perspective than Trump. This does not even count the push he is making for more crypto that enables criminal enterprises and compromises the intergrity of our financial system.
So your proposal is what? Letting the equivalent of Pam Bondi or Pete Hegseth take his spot?
Thanks, Oren. It is becoming clear to me that Powell and the fed are exceeding their remit. I am not a Trump supporter and I have no thoughts about who should replace Powell. But, I can see political motivations as clearly as anyone, and Powell is acting politically. Or, if not politically, he is deliberately (I can't believe mistakenly) confounding the possible effects of tariffs. As you point out, the data does not support him. If anything, it indicates there is a case for lowering interest rates, or at least saying the fed is considering it which is enough to affect markets.
Your point about a carbon tax is spot on. I don't recall anyone warning of the dire inflationary consequences of a carbon tax. I don't recall the fed issuing statements or testimony about the inflationary impact it would have on the economy.
What does the data actually say, Mr. Powell? Act on that. Or, don't! But, admitting the data does not look like you expected it to - but it will soon! trust him! - and then saying the non-evident effects of tariffs are steering your policy position makes you increasingly look like you are putting your thumb on the political scale.
Thank you for the post. If I understand it correctly, tariffs may raise prices but do not cause inflation. Inflation is a monetary disorder, tariff-induced higher prices are a real economy disorder. But what about the mimetic effects? When people expect prices to rise whether from tariffs or from some other cause, as many do, then price-setters (sometimes called monopolists, sometimes price leaders, but whatever) tend to take advantage of the expectation and raise prices--which is inflation. How, in a period of differential rising prices (albeit tariff-induced), do we keep the opportunists from raising their prices, too, simply because they can?
“Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It signifies a reduction in the purchasing power of money, meaning each unit of currency buys fewer goods and services. Essentially, inflation means things generally cost more than they used to”
Tax rises in general aren’t inflationary however, quite simply, if the cost of a product made abroad is $50, and you slap 50% tariffs, the cost at the till is now $75. And if there is no production capability in the U.S., then there’s no possible substitutes, and consumers have to pay more… it is very simple.
Also, If, as consequence, importers - such as retailers - stop importing goods because of the additional costs. Scarcity is created, because, again there is no U.S. production and substitutes. Creating - you guessed it - inflation.
NB: Consumer prices rose 2.7% in the year to June, up from 2.4% the previous month, with prices rising at the fastest pace since February
Trade from China was down 34% in May compared to May 2024.
Source: Financial Times
Anyone who thinks the Fed is somehow above and independent of the fray of politics is incredibly naive.
And just once and for all, wouldn’t it be great if professional economists quit lying about inflation and what causes it?
I wrote on this a few days ago:
There is a persistent — and arguably misguided — tendency to conflate tariffs with inflation. But tariffs, like VAT or GST, are ultimately taxes. And once we reframe them as such, their role in inflation becomes less clear-cut, and current central bank thinking begins to look increasingly muddled.
When VAT or GST is introduced, few economists would argue it constitutes sustained inflation. It may cause a one-time jump in price levels, but inflation, properly defined, is a sustained increase in prices and price expectations. If a tariff were inflationary in the way some suggest, then removing it should be deflationary — a claim rarely made with any conviction.
Indeed, lowering a consumption tax should, if anything, be inflationary in the medium term. Consumers with more disposable income tend to spend more. And when demand rises faster than supply can adjust, prices increase. This is Economics 101.
What tariffs do, in effect, is shift income from consumers and importers to the government — just as any tax does. The key macroeconomic risk they pose is not inflation, but demand destruction. Tariffs raise the cost of imported goods, which can weigh on household consumption and corporate margins, potentially triggering a broader economic slowdown.
This is the real danger — not a wage-price spiral, but the chilling effect of policy-induced cost pressures. And it is here that central banks, particularly the Federal Reserve, may be misreading the moment.
With core inflation falling and forward expectations well-anchored, the Fed has scope to act. The greater threat lies not in a re-acceleration of prices but in rising unemployment and weakening demand. If that’s where the cycle is heading, rates will need to come down anyway. Why wait?
Powell is just one of the Federal Reserves governors. Rightly or wrongly, they believe the current administration’s policy, or lack thereof, on tariffs is inflationary. Why shouldn’t they? The price of the goods subject to tariffs rises, as will the price of at least some goods produced here. For example, if there is a 20% - 40% tariff on steel and U.S. steel production is insufficient to meet demand, the effect is inflationary until our steel industry can expand production. If the administration had a coherent policy, maybe the Fed would lower interest rates, which itself can be in the long run inflationary.