The consumer price index rose 8.3% in August year-on-year, slightly less than July but more than the 8.1% economists expected. If you strip out the price of food and energy, core prices rose 0.6% from July to August – double what economists had forecast.
And, as the last major economic data release before next week’s Federal Reserve policy meeting, Tuesday’s report guaranteed that the central bank will announce another interest rate hike.
Let’s go back: All of this is bad news for consumers, who are being hit with a quadruple whammy of financial pain – inflation is eating away at everyone’s wallets; higher interest rates are making it harder to borrow money; wages are mostly flat; and 401(k)s are a mess as the market sinks.
The Fed has been raising rates for the past six months and is still far from its inflation target of around 2%. At this point, is it time to admit that the price problem is simply too big and weird for the central bank to fix on its own?
The short, not-so-satisfying answer: Maybe.
The big problem here is that no one—no matter what they claim in their hot photos on Twitter or their endless TV commentary—actually knows what to do here in this weird economy that’s been hit by unprecedented shocks.
For example, rising interest rates should slow demand, of course. But ending the war in Ukraine would be a bigger help (on so many levels). The Fed can’t do that. Dismantling supply chains would also be good. (Also not Fed jurisdiction.) Eliminating Covid and stopping climate change couldn’t hurt. (I wish Jay Powell could come in, snap his fingers to do it, but, alas, he can’t.)
“The economy is in a very unusual place, and some of this may be the result of a very unusual pandemic,” said David Wessel, a senior fellow in Brookings Economic Studies and director of the Hutchins Center for Fiscal and Monetary Policy.
But that’s nowhere near the crisis the Fed faced in 2007 and 2008, when the financial system fell apart and the Great Recession began.
“We have a very strong job market, strong consumer demand and high inflation,” Wessel says. “The Fed needs to raise interest rates. And the fact is, it doesn’t seem to have raised them enough to slow the economy yet.”
So what will the Fed do next?
Tuesday’s report is gathering a sense of urgency to keep inflation under control by any means necessary. Most observers expect Jay Powell to announce another three-quarter-point hike, though the odds of a full-point hike — almost unthinkable before this week — are not insignificant.
Investors are pricing in a 22% chance of a full move next week, according to CME Group’s Fed Watch tool.
In any case, the recipe for the Fed is to stay the course and keep raising rates, which should eventually drive down prices as consumers and businesses are pushed by higher borrowing costs. But it seems increasingly likely that the Fed will only be able to do this by stifling demand so much that the economy falls into a recession, as Paul Volcker did in the early 1980s. Powell and company are making a calculated bet that the short-term pain of a recession is preferable to the long-term pain of letting inflation run rampant.
NUMBER OF THE DAY: $1.2 billion
THE TWITTER EVIDENCE
In D.C., Congress heard from Twitter’s former security chief, who is now speaking publicly about what he sees as serious security vulnerabilities — just one of many twists and turns complicating the company’s courtroom battle with Elon Musk.
And if these don’t inspire someone at HBO or Netflix or Hulu to pick up a 13-episode series on the entire saga, I don’t know what will:
- First, the spies: Twitter is extremely vulnerable to being exploited by agents of foreign governments, Zatko said. At one point during his tenure at the company, Zatko said he raised concerns with an executive that he believed a foreign operative was on the payroll. The response from the executive, according to Zatko, was: “Well, since we already have one, what’s the problem if we have more? Let’s keep growing the office.”
- Fines, fines: Zatko said Twitter has largely shrugged off threats from US regulators, expecting to pay fines or one-time fines in response to any legal violations by the company. Those fines cost her business, he said.
- User data: Zatko detailed some of the personal information Twitter collects about users, including phone numbers and emails, IP addresses, and the locations from which users access the platform. He also claimed that Twitter does not fully understand all the user data it collects, why it is collected or where it is stored.
- Just … wow: Zatko offered a scary hypothesis: “It’s not crazy to say that one Twitter employee could take over the accounts of all the senators in this chamber.”
Twitter responded by repeating its denial of Zatko’s claims, which were first reported last month by CNN and the Washington Post.
“Today’s hearing only confirms that Mr. Zatko’s claims are riddled with inconsistencies and inaccuracies,” a Twitter spokesperson said in a statement to CNN.
The company declined to respond directly to a list of specific allegations from Zatko, including the company’s alleged failure to disclose whether foreign agents are on its payroll and claims that the FBI has warned Twitter that there may have been at least a Chinese agent in the company. .
