Thoughts From The Divide: Little Tweaks and Adjustments

“I actually think we’re going to see inflation be choppy, and I expect that we’ll see employment stay robust.”

As we noted back in May, “one swallow does not make spring”. But if we are to follow the advice of Keynes/Samuelson, when information changes, we should adjust our conclusions. Blast! The trick is, of course, balancing the two ideas to adjust conclusions when the evidence suggests such an adjustment is appropriate: you might call it Bayesian inference. The above quote from Bostic illustrates the problem, with the Atlanta Fed head implicitly stating that he will be ignoring any hot inflation prints. All of this is made even more complicated by the near-constant adjustments to the data (made worse by complicating factors such as hurricanes). Take, for example, the recent adjustment of GDI, which seemingly reverses the previous “understanding” that the consumer is tapped out. Today’s Retail Sales data suggested a rosier view of the consumer.

Another adjustment we have recently noticed is the shift in the economic narrative. We have been prone to joking about the tendency of “economic experts” to argue against the consumer/voter perspective regarding inflation and other economic realities, repeatedly asking the question, “who are you going believe, me or your own eyes”? It turns out there may be limits to the effectiveness of gaslighting. Adam Tooze, a leading voice on “team transitory”, recently wrote about his “cognitive dissonance” in bridging his “sophisticated social constructivist” (our apologies to anyone who may be reading this while eating or drinking) view on inflation with his own lived experience. It seems the inflation numbers “aren’t capturing our reality”. He goes on to discuss how the data could better capture the inflation consumers feel but concludes that there may be a better way to communicate economic policy than telling people that they are wrong. What a thought!

P.S. While the details are scant, JPM “selling a significant risk transfer linked to a portfolio of about $3 billion in net asset value loans” doesn’t inspire optimism.

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