Ken Langone thinks the Fed is wrong and inflation is here to stay

https://www.cnbc.com/2021/07/28/why-ken-langone-thinks-the-fed-is-wrong-and-inflation-is-here-to-stay.html 

• Ken Langone told CNBC on Wednesday he believes the Federal Reserve’s view on inflation is wrong.
• “I don’t believe this is transitory. I don’t believe this is temporary,” the billionaire businessman said.
• Langone expressed concerns that too much additional government spending in the economy will “take a white-hot fire and throw a 5-gallon gas can on top of it.”

Billionaire businessman Ken Langone told CNBC on Wednesday he expects higher-than-usual inflation to hit the U.S. economy for longer than the Federal Reserve anticipates.

In an interview on “Squawk Box,” the Home Depot co-founder said both raw material and labor shortages have caused increased consumer prices during the pandemic economic reopening. Now, the potential for trillions of dollars of additional government spending on top of that is worrisome, Langone said.

“I think you’re going to take a white-hot fire and throw a 5-gallon gas can on top of it. You’re going to have flames so high it’s going to be incredible,” Langone said. “I don’t believe this is transitory. I don’t believe this is temporary,” he added, referring to the long-held view of Fed Chairman Jerome Powell about recent increases in inflation.

Powell and other central bank officials for months predicted inflation will pick up as Covid restrictions ease and consumers start to engage in economic activities they paused during the pandemic such as travel. That, combined with supply chain bottlenecks also stemming from the health crisis, created a situation where prices will rise faster than normal, they warned.

That’s exactly what has happened. Most recently, the Labor Department’s consumer price index rose at its fastest pace in more than a dozen years, jumping 5.4% in June compared with a year earlier.

The question being asked now is whether the inflation rate will retreat toward the Fed’s target of 2% on average on its own, or whether the central bank needs to exercise the levers of monetary policy to tamp down on price pressures.

At a news conference later Wednesday after the central bank’s two-day July meeting, Powell acknowledged inflation has been “running well above our 2% objective” in recent months. It is “expected to run certainly above our objective for a few months before we believe it’ll move back down toward our objective,” he added. 

Even so, the Fed chief said the labor market still has “some ground to cover” before the central bank would feel enough progress has been made in the economic recovery.

Powell, appearing before Congress earlier this month, said “a perfect storm of high demand and low supply” has sparked the inflationary pressure. “Unless we think there’s going to be a multiyear, many-year shortage of used cars in the United States, we should look at this as temporary. We very much think that it is,” Powell said, alluding to the role surging used car prices have played in hotter-than-forecast inflation readings.

Langone, for his part, zeroed in on the Democrats’ $3.5 trillion budget proposal. The longtime Republican donor said he’s on board with the smaller bipartisan infrastructure proposal that Congress is currently negotiating. America definitely needs to upgrade its roads and bridges, he said, adding he also supported last year’s multi-trillion dollars worth Covid relief packages, given the uncertainty in the pandemic’s early stages.

But Langone said the Democrats’ budget proposal, which among other provisions would create a national paid family and medical leave program, is too expensive at a moment, when too many dollars already appear to be chasing too few goods. Many businesses have already raised prices to offset the higher wages they started to pay to attract workers, Langone said.

“The fact is ... if this hyperinflation happens, it will be too late to recognize. Maybe you’re going to need this $3.5 trillion thing, but not now. Not now. Watch it. See what we’ve done, what we’ve put in place,” Langone said.

“What I’m saying right now is, please, please, Congress, be careful. You’re playing with fire. If you’re wrong, the little guy, the guy you say you want to help, is going to get punished severely, and that’s going to be too bad.”

Biden Downplays Inflation, Predicts Businesses Will Be In 'Bind' Over Labor Shortages, Then Has Brain Freeze

Biden Downplays Inflation, Predicts Businesses Will Be In 'Bind' Over Labor Shortages, Then Has Brain Freeze 

https://www.zerohedge.com/political/biden-downplays-inflation-predicts-businesses-will-be-bind-over-persistent-labor

Low Pay, No Benefits, Rude Customers: Restaurant Workers Quit At Record Rate

 https://www.npr.org/2021/07/20/1016081936/low-pay-no-benefits-rude-customers-restaurant-workers-quit-at-record-rate

A wooden spoon gliding over cast iron. Barely tall enough to see over the stove, Lamar Cornett watched his mother, a cook, make his favorite dish of scrambled eggs.

That first cooking lesson launched a lifelong journey in food. Cornett has spent over 20 years in Kentucky restaurants, doing every job short of being the owner. The work is grueling and tense but rewarding and rowdy, and so fast-paced that the pandemic shutdown was like lightning on a cloudy day.

"It was almost like there was this unplanned, unorganized general strike," Cornett said.

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In those rare quiet moments, millions of restaurant workers like Cornett found themselves thinking about the realities of their work. Breaks barely long enough to use the restroom or smoke a cigarette. Meals inhaled on the go. Hostile bosses, crazy schedules and paltry, stagnant pay.

To top it off: rude customers, whose abuses restaurant staff are often forced to tolerate. And lately, testy diners have only gotten more impatient as they emerge from the pandemic shutdowns.

Cornett, off work for a few weeks, realized he received enough money through unemployment benefits to start saving — for the first time. He wondered if the work he loves would ever entail a job that came with health insurance or paid leave.

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"I was working what I decided was going to be my last kitchen job," Cornett said.

As he pondered a new career path, an exodus began rattling his industry. Workers have been leaving jobs in restaurants, bars and hotels at the highest rate in decades. Each month so far this year, around 5% of this massive workforce have called it quits. In May alone, that was 706,000 people.

And now "help wanted" signs are everywhere, with a staggering 1.2 million jobs unfilled in the industry, right when customers are crushing through the doors, ready to eat, drink and finally socialize.

"They're just yelling the entire time"

Low wages are the most common reason people cite for leaving food service work. But in one recent survey, more than half of hospitality workers who've quit said no amount of pay would get them to return.

That's because for many, leaving food service had a lot to do also with its high-stress culture: exhausting work, unreliable hours, no benefits and so many rude customers.

"I never want to do something like this again," said Marcus Brotherns, who spent two years serving coffee and doughnuts at a drive-through in Rhode Island. During the busiest hours, customers would storm inside to complain about the wrong amount of creamer or sugar.

"They're just yelling the entire time," he said. Brotherns got a new job delivering beverages to restaurants, work that's tough but quieter and better-paying with more stable hours. "I am done with fast food."

Tensions escalated over the pandemic, when many low-wage workers at stores and restaurants found themselves forced to be the enforcers of mask-wearing mandates, facing harassment and physical attacks.

Now, as many eateries are short-handed and hurriedly train new staff, negative reviews and complaints are on the rise from impatient, oblivious diners. One restaurant in Massachusetts even closed for a "Day of Kindness" after angry customers drove servers to tears.

Average pay finally topped $15 in May

To adjust to the worker shortage, many food establishments found themselves reducing their hours, operating with skeleton crews and hiring like crazy.

"We used to be known as a late-night restaurant. ... We can't do that anymore. I don't have the staff and people are exhausted," said Laurie Torres, whose Ohio restaurant now closes earlier and stays closed on Mondays. She said she's been paying her staff bonuses and offered $17 an hour for a dishwasher job, and still three workers stood her up.

In fact, for the first time on record, average hourly pay for nonmanagers at restaurants and bars topped $15 in May.

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Major chains have been trumpeting higher wages: Chipotle, Olive Garden, White Castle, even McDonald's, which is now promising entry-level pay between $11 and $17 an hour. Employers are paying people just to show up for interviews, adding signing bonuses and recruiting ever-younger workers on TikTok.

"Every manager acted like they were urgently hiring, it was kind of weird. Like, their big focus was: When can you start?" said Sterling Baumgardner, who at 17 is a minor in Ohio. He recently quit his job at Dunkin' Donuts and got immediately hired at a sandwich chain making about $12.50 an hour, $3 more than before.

If you can't pay well, "then you can't afford to be in business"

Food service jobs have been "plagued with low wages for an extraordinary long period of time," said Jeannette Wicks-Lim, labor economist at the University of Massachusetts, Amherst. Pay was eking up before the pandemic but then fell again, and so now, she said, workers are just barely making up lost ground. Wages might be jumping fast, but not very high.

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Cornett, the lifelong restaurant worker from Kentucky, has watched the wage issue get tense on his local food service Facebook group. Any job posting below $15 an hour would get jeers and demands for higher pay. Then the employers would get defensive, saying they couldn't afford big raises.

"The immediate response every time was: 'Then you can't afford to be in business, bro,' " Cornett said.

He was planning to hang up his apron and began looking at jobs at warehouses and factories when he got an offer he couldn't turn down — from someone who could afford to be in business while paying him better. He's now a chef at a new brewery in Louisville.

"This is the first time I've ever been on a salary," Cornett said. "This is the first time I've been able to depend on getting a specific amount of money every pay period."

That amount is $30,000 a year — which isn't a lot, he admits. But it's "life-changing" compared with his long career earning $22,000 or $23,000 a year.

It's also the first time he's had only one boss, whom he likes. And the first time — finally — that he's had a job that offers health insurance.

• food service
• pandemic unemployment
• us economy
• labor shortage
• fast-food workers
• restaurants
• employment
• jobs

Stanley Druckenmiller, $3.5 trillion proposal, warning that it could provoke a massive rise in inflation.

American investor Stanley Druckenmiller, who has been briefing lawmakers negotiating an infrastructure deal, is sounding the alarm over Senate Democrats' $3.5 trillion proposal, warning that it could provoke a massive rise in inflation. He tells Stephanie Ruhle about his talks with senators and cautions that "we have a very hot economy and very hot inflation."

https://www.msnbc.com/stephanie-ruhle/watch/druckenmiller-warns-of-dire-consequences-of-more-government-spending-117262917868 

Temporary or not, inflation is rattling restaurants and broader economy

https://www.washingtonpost.com/business/2021/07/20/inflation-restaurants-fed-biden/ 

Only once in six years had Mark Maguire raised prices at his North Dallas restaurant.

Then, some of his employees, no doubt noticing the banners touting $1,000 signing bonuses at other eateries, demanded higher wages. And his suppliers hiked the cost of chicken, beef and cooking oil.

Maguire’s costs rose so much so fast that he’s had to rewrite his menu prices twice since March. Whether additional increases will follow depends upon a complex interaction of food supplies, labor availability and a shape-shifting virus.

“It’d be foolish for me to believe we’ve seen the worst of it,” he said. “I don’t want to let my mind think about this becoming a long-term deal.”

Neither does the Federal Reserve or the Biden administration, which both insist that the inflationary squall will pass before it unhinges the recovery. On Monday, President Biden called rising prices “temporary” and said his plans for infrastructure spending and pro-competition regulation would drive prices down in the long run.

Consumer confidence readings, however, are sagging, and the unpredictable landscape confronting Maguire, 57, helps explain why some employers lack Washington’s confidence.

White House economists liken today’s fast-rising prices to a temporary bout of inflation following the end of World War II. But Fed officials concede that they already have been surprised by the recovery’s initial chapters and that more surprises may loom.

“It’s a once-in-a-century experience with a different economy than it was a century ago,” said Diane Swonk, chief economist with the firm Grant Thornton. “There’s just no road map.”

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Last week’s Labor Department report that consumer prices rose 5.4 percent in June, their fastest pace in 13 years, reignited a debate about whether officials have overstimulated the economy.

Congress over the past 16 months has spent more than $5 trillion to support growth, while the Fed has kept interest rates near zero and purchased more than $4 trillion in bonds.

The Fed says it will tolerate, for an unspecified period, inflation running “moderately” above its long-term 2 percent goal. But critics such as former treasury secretary Larry Summers warn of an inflationary spiral resembling the decade-long rise that began in the late 1960s.

Fed Chair Jerome H. Powell acknowledged last week that the current pace of price increases is excessive, while reiterating that they will subside as the economy works out its reopening kinks.

Speaking at the White House on Monday, the president said that “no serious economist” believes that “unchecked inflation” is likely. He blamed the rising cost of living on the strains of economic reopening.

“You can’t flip the global economic light back on and not expect this to happen,” Biden said.

Normally, the Fed would raise interest rates to cool off rising prices. But with employment still more than 10 million jobs below its pre-pandemic trend, and with profound uncertainty about the pace of rehiring, the environment is anything but normal.

“The challenge we’re confronting is how to react to this inflation, which is larger than we had expected or anybody had expected,” Powell told the Senate Banking Committee last week. “To the extent that it is temporary, it wouldn’t be appropriate to react to it.”

If the Fed is correct, inflation will slow as production bottlenecks ease and government stimulus wears off. But if the price increases trigger a vicious cycle of accelerating wage gains, the central bank could be forced to raise interest rates abruptly, potentially plunging the nation into a new recession.

The pandemic is clearly responsible for some unusual price surges, such as for hotel rooms and airfares. Used-car and truck prices also jumped by 10.5 percent in June, the largest one-month rise since the government started keeping track in 1953, according to the Bureau of Labor Statistics (BLS).

That sharp increase stems from a shortage of semiconductors that have interrupted production of new cars and prompted some buyers to consider used models instead. At the same time, rental-car companies that reacted to last year’s pandemic shutdowns by selling their fleets are now scrambling to restock by buying used cars at auctions, further boosting demand.

But those factors will not last. Automakers’ production “should be much stronger throughout the second half of the year,” increasing dealers’ inventories of new cars and easing sticker shock, JPMorgan Chase economist Dan Silver wrote in a research note Friday.

“Consumer prices for used vehicles could start to head lower soon,” he added.

Indeed, wholesale used-car prices, which generally anticipate prices on dealers’ lots by a couple of months, fell in June by 1.3 percent, according to the widely watched Manheim index.

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In other sectors, such as health care and shelter, price increases may prove more sustained, economists said.

Maguire, who once launched restaurants for the Walt Disney World Co., is trying to solve the same puzzle Powell is confronting. Like the Fed chair, the restaurant owner sees reason to believe inflation will cool. The cost of a 20-pound box of chicken breasts, which soared in 90 days from $42 to $113, already has eased to $92, he said.

But the big question is whether Maguire can get and keep enough workers to serve all the customers that have been flocking to his flagship, Maguire’s Kitchen & Catering, since Texas lifted its coronavirus restrictions in March.

“Business is great,” Maguire said. “We’re seeing super-strong demand. It’s so strong it’s become an issue. It’s hitting us on the labor side with wage pressure and availability.”

He has increased his average hourly wage about 30 percent since March, after a group of workers “came to me and said nobody wants to do this job and we need more money,” he said. “We were afraid we were going to start losing people to other restaurants.”

Cooks can earn $17 an hour, up from $12.50 before the pandemic. Hostesses that made $12 now pocket $15.

Yet Maguire can field only 40 workers, down from a full staff of 55, even as demand tops pre-pandemic levels. During especially busy periods, he’s had to close off up to a quarter of his dining room.

About three-quarters of restaurants surveyed in June said labor recruitment was their top problem, up from just 7 percent in January, according to Hudson Riehle, a senior vice president with the National Restaurant Association.

With labor representing about one-third of a typical restaurants’ costs, rising wages have helped drive menu prices to their fastest increases since 2009, he said.

Restaurant demand is likely to increase as more Americans return to work, especially with consumers sitting on an estimated $2.5 trillion in excess savings. The combination of a steady paycheck and less free time to devote to meal preparation often drives people to eat out, he said.

Michael Strain, a former Fed economist now with the American Enterprise Institute, said the restaurant industry could suffer more-persistent inflation than other sectors. The cost of meals away from home is up 4.1 percent over the past year, below the economy-wide figure, according to the BLS.

“You’re seeing significant price increases in restaurants,” he said, blaming factors including wage pressures.

Like anyone who lived through the 1970s, Maguire recalls the feeling of an economy that seemed to rest on quicksand. He remembers his father marveling at 20 percent mortgage rates and waiting in long lines for scarce supplies of gasoline.

A repeat of that era’s double-digit inflation is unlikely, according to most economists. For one thing, today’s economy is far less unionized, so automatic wage increases don’t ripple across industries the way they once did.

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The White House earlier this month said the environment most resembles the inflationary spike that followed World War II. As the government lifted wartime price controls, Americans rushed to buy the automobiles and appliances they had been denied during years of sacrifice.

By July 1946, inflation reached an annual rate of more than 9 percent before peaking in March of the following year at nearly 20 percent. President Harry S. Truman called a special session of Congress in November 1947 to address mounting public concern about prices.

It took 2½ years for the postwar economy to settle down. But by December 1948, inflation had cooled to 3 percent.

Whether a similar cool-down will occur this time remains to be seen. Maguire — and many economists — are trying to assess crosscutting currents in the labor market.

Nationwide, the share of the working-age population actively working or looking for work is below 62 percent, almost two percentage points below the pre-pandemic figure.

Texas opted out of federal pandemic unemployment benefits on June 26, which Maguire hopes will ease his hiring troubles.

Hanging over everything is uncertainty over the pandemic’s trajectory, at a time when the delta variant of the coronavirus is galloping across the country. Just 51 percent of Texans 12 or older are fully vaccinated, compared with more than 56 percent nationwide, according to the state and the U.S. Centers for Disease Control and Prevention.

As the delta variant spreads, low-income workers who are less likely to be vaccinated could stay on the sidelines, Swonk said. Similarly, women might be unable to return to work if schools are slow to reopen and they lack alternative child care.

“That delta variant scares me,” Maguire said. “I hope it scares enough of the unvaccinated people into getting vaccinated.”

Continued wage pressure as workers remain scarce and demand stays strong means another increase in menu prices “is certainly possible,” Maguire said. But like the chairman of the Fed — and the president of the United States — he is counting on the economy getting back to normal by the end of the year.