🏦 Inflation stays sticky in 2023 — the wage chapter

“Inflation, which people expect to fall off a cliff, doesn't fall off a cliff as fast or as meaningfully as people want... the pendulum is swinging very markedly away from capital and towards labor... my big contrarian wager for this year is wage inflation that keeps inflation not going down as much as people want.”

“And I think probably where we're sitting at this moment is you'd have to say that the risks of inflation returning are slightly higher, but the risks of a recession are slightly lower because with this kind of jobs report, better chance of having a soft landing here.”

“And that the implication of a tight job market is wages go up and wages go up, inflation goes up and because companies need to charge more because they have to pay more to get talent. And this obviously continues to support the escalatory spiral that drives inflation.”

“Because we don't have this first inflationary cycle under control, there could be a risk that that we reignite inflation. And so then, then they have to capitulate the Fed has to capitulate again and start another hiking cycle.”

“My suspicion, if you look at Morgan Stanley and Goldman Sachs, the consensus view is that we're still heading in the direction of 4% faster than I think people emotionally think. So I would say there's maximum uncertainty in the world. The fear that inflation is uncapped, the way Larry Summers was articulating November and December, is less today than it was.”

“Look, I've maintained now for nine months that rates are going to be higher than we like and longer than we want. And so I think it's high time that we acknowledge that we have a sticky inflation problem whose back we have to break.”

“This is also where you have to expect the Fed will really want inflation to stay high. That's sort of what we've said before. The only way out of this mathematically is to keep rates high.”

“But when you show that chart, Jason, what it means is it's just really hard to find people. And so the only way you're going to get people off their butt to go into work, to sit in a chair, to do a job that you need them to do is to pay them more. And in finding that, wages will have to go up.”

“You've got core CPI is still sticky. Yes, CPI is coming down, but it looks like, you know, inflation is still a problem. This is not a great setup for economic recovery.”

“And so you just have to get prepared for rates just being sticky and inflation being sticky. And I think that that's probably the most reasonable base case for the rest of the decade.”

“So by continuing to constrict the money supply, have rates that are relatively elevated, maybe a quarter or two longer than they need to, it gives them a lot of positive optionality if they need to step in if something bad really happens.”

“I talk with a lot of people in the farm economy, as you guys know, and this is an endemic problem in California agriculture, is that the lack of a labor force that allows the farms to be profitable is really impacting folks' ability to operate and to grow, and that ultimately translates into consumer prices and so on.”

“So I think that Larry is right. I think that I still believe what I've said for a while, which is rates will be higher for longer.”

“if their rates go from, you know, eight bucks to 15 bucks to 25 bucks an hour, the cost of fast food goes up”

“So I don't know who's gonna work in all these factories if we don't have an immigration policy.”

“Remember, we're seeing inflation roll over huge, and we have a chips act and an infrastructure. We have massive government spending going on, and we still see inflation rolling over. So I just find it interesting that within six months, we've gone from worrying about hyperinflation to Bloomberg running a headline summer of disinflation.”

“the markets were really trying to force Jerome Powell to start the cutting cycle. And now they had to move the date at which they could expect cuts out by a year. ... You're going to have to reprice a lot of risk assets.”

“And the reason is because the market had started to price in rate cuts next year. ... So as a result of that, interest rates are going to stay higher longer, which means that risk capital will be less available.”

“I think what changed for the market was the Fed's rhetoric. And I think that they were holding on to this option that they were going to show up out of nowhere with another 25 or 50 basis point increase. And I think that that's fundamentally now off the table.”

“I think that I've been saying for a while that rates will be higher for longer for quite a while now. And I was really surprised when Jay Powell had this press conference in December, in early December, and just basically capitulated and just said, you know what, guys, we're going to be cutting probably three times next year.”