Jon Turek on the Macro Outlook for 2022
Topics covered
Popular Clips
Episode Highlights
Inflation Persistence
Inflation's persistence in 2021 surprised many, with noting the unexpected stickiness due to supply bottlenecks and excess demand 1. This inflationary trend deviated from the past two decades, where only education and healthcare saw consistent price increases. Turek highlights the challenge of returning inflation to the 2% target, given the current robust demand and the shift from goods to services consumption 2.
The question now is what is the run rate? And getting that run rate back to 2% is seemingly getting a little harder, especially for next year.
---
He suggests that while inflation may decrease, achieving negative prints on durable goods prices is unlikely due to persistent demand.
Fed's Shift
The Federal Reserve's policy recalibration is a response to persistent inflation concerns, with emphasizing the shift from preemptive to reactive measures 3. He notes that the Fed's focus on inflation expectations could lead to a faster pace of rate hikes if inflation remains above target 4. This recalibration occurs amidst a rapidly healing labor market, which is recovering faster than in previous cycles.
I do think inflation is the dominant variable in this recalibration of policy.
---
Turek suggests that the Fed's approach may involve multiple rate hikes in 2022, reflecting a significant shift from earlier expectations of no hikes until 2024.
Wage Dynamics
Wage growth and demand trends are key factors influencing inflation, as explains the role of robust wage growth in sustaining demand 5. He highlights the impact of fiscal policies and the Amazon-Walmart effect on wage increases, making it challenging for inflation to revert to the Fed's 2% target. Turek also points out the ongoing labor market tightness, which supports continued wage growth.
Wage growth is broadening out in the economy and is really strong as we've had this reset of wages.
---
This environment of strong wage growth and demand suggests that inflationary pressures may persist, complicating the economic outlook for 2022.