2023-08-25 Markets

On inflation again and on why it is so difficult to think of it as moving in a unique direction or as a simple monetary issue. — The cover picture above shows what I think of as the ‘social acceptance of inflation:’ a lot of people in the US and around the world who have not enjoyed the benefits of the last 30+ years of globalization are now ready to claim back some wealth. The share of income going to the workforce, in decline for decades in terms of proportion of GDP, needs to change direction, and this will be inflationary. — At the same time, as the second picture below makes clear, financial institutions in America are tightening lending standards with unusual vigor. This reflects in part the aggressive nature of the Fed tightening, but it also means banks feel uncommonly uncomfortable about accepting risk at this stage of the monetary cycle. Either way, it’s difficult to interpret this posture as inflationary.  
[Pictures: Axios]