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Monday, January 15, 2018

Links; more on heating vs. overheating. [feedly]

Links; more on heating vs. overheating.

Medicaid is a highly efficient program (see figure below), delivering health coverage to 70 million low-income persons while conveying many ancillary benefits on its beneficiaries, as Hannah Katch and I point out in the NYT oped.

So, of course, Republicans want to lay waste to it. They were blocked from doing so through their ACA repeal, they did a bit of it in their tax plan, and now they're going after Medicaid through the waiver process (which skirts Congress), by adding a work requirement. As Hannah and I stress, you can't feed or house your family on health coverage, so the incentive to work is already built into the program, which is why most able-bodied beneficiaries already work.

At any rate, it's going to take action at the state level to block this latest attack.

Turning to other current events, I wrote about jittery bond markets yesterday, trying to emphasize that heating is not overheating. We should expect to see inflation and interest rates on the rise, given how low they've been and the stage we're at in the expansion. Though granted, the Fed must try to look around corners, I don't see much evidence of real resource constraints building up.

Yet, bond rates spiked when the core CPI came out this AM at 0.3% over the month instead of 0.2%. Note that yr/yr core CPI came in at 1.8%, which, given that the CPI runs ~30bps hotter than core PCE, is much like the growth rate of the core PCE, which last come in at 1.5% (Nov/Nov). Both are well below the Fed's target rate.

As the next figure shows, breakeven rates, a measure of inflation expectations measured as the spread between rates on 10-yr TIPS and 10-yr Treasuries, have spiked a bit in recent days, as has the 10-year yield. But they're only back to levels from about a year ago, and, as noted, CPI core inflation itself remains well below target (which is 2.3-2.5 for core CPI).

This all comes down to a few key questions:

Q: Are resource constraints building in the economy?

A: Not that you'd see in inflation (realized or expected), interest rates, or wage growth. As for employment, the jobless rate is low but employment rates may have room to run.

Q: Have the benefits of the recovery reached deeply enough into all corners of the country?

A: It's getting there, but wage growth is under-performing and there are areas where the job market has not yet firmed up.

Perhaps most importantly:

Q: Are the risks to the Fed hitting the growth brakes symmetric or asymmetric?

A: They are asymmetric. Since inflation has been below target for years on end, achieving the Fed's 2% target, on average, requires some period of  being above the target rate. Similarly, the least advantaged don't catch a buzz from the recovery until we hit and stay at chock-full employment. Both of these factors point to the likelihood of greater damage from pushing back too hard on growth right now than from maintaining a largely accommodative stance.

 -- via my feedly newsfeed