In a post-mortem of the Social Security Trust Fund report released Thursday, the Bipartisan Policy Center hosted a webinar featuring speaker Steve Goss, chief actuary of the Social Security Administration. Goss looked beyond the headlines stating that the Old-Age and Survivors Insurance will run out in 2034 (a slight improvement from last year’s forecasted demise of 2033) and that the Disability Insurance fund is now solvent for another 75 years.
“We’re in a little better shape [than 2021] because the economy has come roaring back to such a wonderful extent,” Goss said.
He also pointed out that labor demand has had a “remarkable rebound.” For example, it took 10 years for the job market to come back after the 2008 Great Recession. However, the 2020 recession, which was “very deep and very abrupt,” has also reversed just as quickly and in the first quarter of 2022, “we are virtually back to the high level that we had just before the start of the recession.”
Monetary inflation occurs when the U.S. money supply increases over time. This represents both physical and digital money circulating in the economy including cash, checking accounts, and money market mutual funds.
The U.S. central bank typically influences the money supply by printing money, buying bonds, or changing bank reserve requirements. The central bank controls the money supply in order to boost the economy or tame inflation and keep prices stable.
Between 2020-2021, the money supply increased roughly 25%—a historic record—in response to the COVID-19 crisis. Since then, the Federal Reserve began tapering its bond purchases as the economy showed signs of strength.
The Fed has often moved interest rates by 0.75 percentage point or more in recent decades. But until this week, it had always done so in a downward direction. Indeed, it was a hallmark of Fed policy that it always cut interest rates faster, with less prompting, than it raised them.
This asymmetry reflected the Fed’s perception of risks. If it cut rates too little, the economy might spiral down and the financial system implode. If it cut them too much, inflation might, some years later, rise. Throughout this prepandemic period, inflation was low and, at times, too low, but that wasn’t a big deal. Moreover, during that low-inflation, low-interest-rate era, rates couldn’t fall very much — the Fed called this the “zero lower bound” — so best to act quickly to forestall a downward spiral. If inflation was a problem, there was no limit to how high rates could go.
This philosophy got taken too far. The Fed kept rates too low for too long last year (and the Biden administration enacted too much fiscal stimulus) out of a mistaken belief that inflation was a remote threat compared with prolonged high unemployment.
The result is that risks are now asymmetric in the other direction. Inflation is too high and a self-sustaining wage-price spiral is a real threat. Asked why, after carefully laying the groundwork for a half-point increase, the Fed raised rates by 0.75 point Wednesday, Mr. Powell pointed to an “eye-catching” report that showed long-term inflation expectations rising ominously.
The Federal Reserve raised interest rates by 75 basis points — the biggest increase since 1994 — and Chair Jerome Powell said officials could move by that much again next month or make a smaller half-point increase to get inflation under control.
Slammed by critics for not anticipating the fastest price gains in four decades and then for being too slow to respond to them, Chairman Jerome Powell and colleagues on Wednesday intensified their effort to cool prices by lifting the target range for the federal funds rate to 1.5% to 1.75%.
“I do not expect moves of this size to be common,” he said at a press conference in Washington after the decision, referring to the larger increase. “Either a 50 basis point or a 75 basis-point increase seems most likely at our next meeting. We will, however, make our decisions meeting by meeting.”
1. Clients could swarm on life and annuity products with benefits guarantees like ants on a candy bar that fell under the picnic table.
Sales of products such as non-variable indexed annuities and non-variable indexed universal life insurance policies soar, as clients flocks to arrangements that can protect them against further drops in stock prices but help them share in gains if and when prices go back up.
Market participants are revising their supply projections downward as rising interest rates have stymied refunding and taxable volumes and overall market volatility has held some issuers to the sidelines.
The pace of issuance so far in 2022 makes it less likely the market will hit previous records seen in 2020 and 2021.
BofA Securities was the latest shop to revise expectations downward because of the dearth of refundings, with strategists Yingchen Li and Ian Rogow forecasting total volume in 2022 to be $50 billion less than the $550 billion assumption they made at the end of 2021.
Municipals took a backseat as the Federal Open Market Committee announced its decision to implement a three-quarter point rate hike while U.S. Treasuries rallied into late afternoon following the news. Equities rallied.
The move, prompted partly by hotter-than-expected inflation data Friday, is the largest rate hike since 1994.
?Investors appear encouraged that the FOMC is willing to take forceful action to try and get inflation under control,” Wilmington Trust Chief Economist Luke Tilley said.
By front loading rate hikes, he said, the FOMC will have ?more optionality as the year unfolds,? and will be able to accelerate hikes if inflation persists, ?but if any cracks appear in the economic recovery they?ll have the option to slow down while still having rates below their estimate of neutral.?
Triple-A muni yields were cut a basis point or were little changed while UST yields fell up to 23 basis points on the short end.
China is expected to surpass the U.S. by the year 2030. A faster than expected recovery in the U.S. in 2021, and China’s struggles under the “Zero-COVID” policies have delayed the country taking the top spot by about two years.
China has maintained its positive GDP growth due to the stability provided by domestic demand. This has proven crucial in sustaining the country’s economic growth. China’s fiscal and economic policy had focused on this prior to the pandemic over fears of growing Western trade restrictions.
Two years after the pandemic hobbled the U.S. economy, pushing up unemployment, Americans are returning to work, including many adults 65 and older, according to new research from MagnifyMoney.
In late April and early May this year, 21.9% of Americans 65 and older were working, up from 19.5% during the same period in 2020. At the same time, the share of U.S. adults who reported that they were retired rose to 17.4% in April and May 2022 from 14.9% two years earlier.
MagnifyMoney found that 25.6% of working older Americans are self-employed, more than triple the rate among working Americans 25 to 39.
The number of working older Americans varies dramatically across the country. In North Dakota, for example, the rate dropped by 11 percentage points over the two-year period, and in Wisconsin by 8.3 points. In contrast, several states saw double-digit increases in employed Americans 65 and older during that period.
What can be done? Federal Reserve Chairman Jerome Powell has an idea: throw cold water on the hot labor market — perhaps the one bright spot in the current economy.
In fact, Powell recently screamed the quiet part out loud, making clear the largest central bank in the world is in fact an adversary to workers, when he declared that his goal is to “get wages down.”
At a May 4 press conference in which he announced a .5 percent interest rate hike, the largest since the year 2000, Powell said he thought higher interest rates would limit business’ hiring demand and lead to suppressed wages. As he put it, by reducing hiring demand, “that would give us a chance to get inflation down, get wages down, and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially.”
The U.S. Bureau of Labor Statistics (BLS) began collecting family expenditure data in 1917 and published its first price indexes for select cities in 1919. In 1921, the BLS published a national consumer price index (CPI), including estimates of the CPI back to 1913. The data and methods starting in 1913 are considered generally compatible through the present day; however, the Minneapolis Fed maintains a separate historical table that includes estimates prior to 1913.
The data below use 1983 as the index (1983=100). This chart uses data from the sole measure of CPI available until 1978, after which it reflects the CPI for all urban consumers (CPI-U). The current year’s inflation figures reflect the most recent quarterly data.
You can use the Minneapolis Fed’s inflation calculator to instantly compare the buying power of past and present dollars. However, you can also use the Annual Average CPI numbers below (center column) to make manual calculations. To find out how much a price in Year 1 would be in Year 2 dollars:
Publication Date: Date Accessed 10 June 2022
Publication Site: Minneapolis Federal Reserve Bank