That second figure is important because it gives you an idea of the expectations for borrowing costs over the next two years. A lot of people, especially poorer Americans, are being hit hard by high interest rates right now. This is because of high inflation and the Fed raising interest rates to combat it. Seeing short-term Treasuries fall provides some hope that the light at the end of the tunnel is near.
The rent is simply too damn high, and high interest rates are actually creating inflationary pressure in interest rate-sensitive industries like housing and insurance. Reducing interest rates would likely lower inflation at this point because there is a positive correlation between high interest rates and higher prices in these overheated sectors.
But if the economy is slowing, that’s a falling tide that drags down all boats. The Fed can argue that even if JPMorgan guys who agree with lefty Modern Monetary Theorists that interest rates should fall to bring inflation down with it are right, high interest rates are slowing the entire economy, so their plan to kill the termites by burning down the forest is working.
If it feels like you’re taking crazy pills when basic necessities are more expensive than they were a few years ago, but the Matt Yglesias’s of the world are pointing to GDP figures like it’s still 1996 and saying actually you’re in great shape, don’t worry, you’re not crazy. The latest inflation data indicates the economy is slowing, which is the goal here! And even though this inflation data is the best we have received since April 2021, inflation is still higher than anyone wants it to be.
The economy has generally been good under Biden even as a litany of unaddressed structural issues continue to put pressure on more and more households, but a good chunk of this growth is due to government investments in the economy. People who think pointing that out is a dunk on liberals don’t understand that they are simply just advocating for the effectiveness of good fiscal spending. We should do more of it!
Biden’s policies have led to some inflationary pressures, but this whole mess is largely the result of COVID shocking the world’s supply chains and the historic amount of money printing in response to that crisis, and it will take decades for all of its reverberations to fully be felt. Today’s data may indicate that inflation is falling, but it is still well above the Fed’s target of two percent, and the concern that inflation may remain sticky for some time has not been assuaged by one set of data.
The last three readings have all been a bit contradictory, and so it seems likely that inflation is not as bad as last month’s figures indicate, but also not as rosy as today’s picture painted. The primary story here is interest rates, and reducing them so people being squeezed by them can get a little breathing room, and if today is any indication, Jerome Powell and the Federal Reserve will likely not start lowering interest rates until September at the earliest—assuming that future inflation readings are in fact, not that bad.
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