The post-election whirlwind has dominated news but other aspects of life march on, including the economy. This week we have learned that the US is running a massive budget deficit, bigger than expected, that interest rates remain stubbornly high as the market attempts to figure out the net impacts of likely Trump policies, that consumers remain stretched with high levels of debt and lower levels of savings and that inflation is not dead. This morning the producer price index was released and won’t give comfort to foes of inflation. That index measures the cost of inputs for manufacturers and others, and obviously, if the cost of what makes up a manufactured product goes up, so will the price of the manufactured product. Details can be found on the BLS website and in this Zero Hedge Post. (ZH Post)
It appears that prices have stopped declining, may not be on a plateau, and may actually be rising. So now we will get ongoing discussion about what is the acceptable level of long-run inflation, is it 2% or should we just move the target higher, to 2.5% or 3%. A higher target might be more in accord with reality, but it also would mean that interest rates, which themselves figure into inflation, would stay higher. Stay tuned, as the first few economic releases post-election will be very interesting. We will see if the political meddling continues or more realistic, and less subsequently-revised, numbers will be forthcoming.
I worry that Biden is leaving Trump with a mess and that Trump will get blamed for it. It is hard to fix this quickly and Trump is kind of in a bind. He needs to address the deficit, but doing so may cause short-term pain. A lot of spending and tax cuts almost certainly will boost inflation, and consumers certainly don’t want to see that. Not a good situation to inherit.