Questioning Almanac's expert

Each month, Dr. Louis Johnston is interviewed by Almanac co-hosts Eric Eskola and Cathy Wurzer about the economy. Usually, it's a solo interview. This Friday night, Dr. Johnston was joined by Dr. Jeanne Boeh. Dr. Johnston teaches economics at St. Benedict's University and St. John's University. Dr. Boeh teaches economics at Augsburg University.

The second question came from Mr. Eskola. He said "With the Fed now looking at the current situation, I think you 2 have taught us that accelerated growth means higher interest rates." Dr. Johnston replied "Well, the idea is that accelerated growth supposedly means higher inflation and so you have to use higher interest rates to put on the brakes. The problem is that they've put on the brakes and we still have really rapid growth and inflation is coming down. Now wait a minute. This isn't supposed to work this way. So I think that that's what's confusing a lot of people." Here's the video for that segment:

First, inflation isn't "coming down." The CPI dropped from 9.1% (year-over-year) in July, 2022 to the mid-3 range this summer but it's returning to almost 5% (year-over-year.) Next, a significant portion of the GDP that was released this week was caused by "inventory investment, which is caused by businesses produce stuff but nobody buys it. That grew last quarter by, I think, a point-and-a-half of the 4.9% GDP."

Prof. Boeh touched briefly on credit card debt and high interest rates on car loans. Apparently, she isn't the only one thinking about such things. This article is titled "Americans are struggling to pay their debts as economy tightens." This says everything:

Americans are having a harder time making interest payments as savings are shrinking and a barrage of interest rate hikes by the Federal Reserve has jacked up the cost of financing.

Delinquency rates on credit cards, mortgages and auto payments have all been ticking up as the level of household savings, which swelled under stimulus payments handed out during the pandemic, have been declining.

Whether we're officially in a recession isn't what's important to consumers. Whether their standard of living is improving or getting worse is what's important. On that front, the verdict is in. Too many people fit into the category of having bills to pay after their cash is gone. That's the definition of a declining standard-of-living.

That isn't the textbook definition of a recession but it definitely isn't the definition of prosperity, either. Kevin Hassett understands inflation better than most economists. Check out this video to understand Hassett's thinking on inflation: