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**APRIL 12, 2024**
On the Prospect website
Financial Irregularities Surround House Candidate Bhavini Patel
Patel, the Jeffrey Yass-backed challenger to Squad member Summer
Lee, likely failed to disclose a $65,000 gift, or make required federal
disclosures. BY MATTHEW CUNNINGHAM-COOK
Republicans Are Objectively Pro-Junk Fee
A new congressional resolution aligns Republicans with the financial
industry's fight to preserve sky-high credit card late fees. BY DAVID
DAYEN
700,000 Undocumented Californians Recently Became Eligible for Medi-Cal.
Many May Be Afraid to Sign Up.
Advocates say outreach is needed to ensure deportation fears do not
stop immigrants from applying. BY GEORGE B. SÃNCHEZ-TELLO
Kuttner on TAP
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**** How the Fed Keeps Getting Inflation Wrong
More than 400 economists work for the Federal Reserve Board. Far too
many are intimidated by the echo chamber of bad economics created by
Chair Jay Powell.
President Biden made two catastrophically bad appointments. One was
Attorney General Merrick Garland. The other was Fed Chair Powell. Either
could literally cost Biden his presidency and the country its
democracy-Garland by having slow-walked Trump's prosecution and
Powell by needlessly slowing the economy.
The latest inflation report by the Bureau of Labor Statistics
, released Wednesday,
showed the Consumer Price Index ticking up by 0.4 percent in March, the
same as in February, but slightly higher than expected. This in turn set
off signals from the Fed that expected rate reductions would have to be
postponed, and near-hysterical media commentary. The Dow duly dropped
more than a thousand points.
According to one press report after another, the economy was stuck with
high inflation; high interest rates would persist; and Biden's
election-year good-news economy would be stuck with a bad-news story
.
But if you bother to take a close look at the details of the actual
price increases by sector, they have nothing to do with the kind of
inflation that justifies high interest rates. Some of the Fed's own
research confirms that.
Nearly all of the price hikes came from a few sectors, none of which
have anything to do with overheated demand. Take homeowner insurance,
where costs have soared, rising 20 percent between 2021 and 2023
.
That has everything to do with climate-related losses that insurance
companies try to make up by hiking rates on other homeowners, and
nothing to do with demand. High interest rates don't touch that.
Likewise auto insurance rates, which increased a staggering 22.2 percent
in 2023
,
according to the March CPI report. Why? Accidents rose during the
pandemic, apparently because stressed drivers with cabin fever expressed
their frustrations via road rage. More complex systems in cars also
increased repair costs. The Fed's policy can't fix any of that
either.
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A few outlier studies by economists at regional Fed banks confirm the
errors in both the Fed's analysis and its policies. This March report
by two researchers at the San Francisco Fed, titled "What's Driving
Inflation?
,"
concludes that "current inflation is being driven almost entirely by
services such as health care, transportation, accommodations, and
housing rents."
People with spare purchasing power are not "demanding" more health care.
Rather, the health system, including drug companies, has too much market
power to rig prices. Rather than hiking rates, the Fed should be
pressing the Federal Trade Commission for even tougher antitrust
enforcement.
Some of the recent increase in the transportation sector is driven by
idiosyncratic hikes in gasoline prices. For instance, California, with
more than 27 million licensed drivers, experiences a more extreme
version of the climate-friendly policy of requiring refiners to shift
from "winter blend" to "summer blend" gasoline every spring.
Because of transition costs, the current price of gas in California is
about $5.43 a gallon for regular ,
or almost two bucks higher than the $3.63 average in the rest of the
country, according to AAA. Powell's high interest rates can't fix
that either. Nor can they solve the housing shortage.
This is wonky stuff, but not that wonky. The media should be doing a
better job of explaining it, as a counterweight to Powell's bad
instincts; and the economists in the Fed's employ should be bolder
about pointing out Powell's bad economics.
~ ROBERT KUTTNER
Follow Robert Kuttner on Twitter
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