Transitory Complete: Fed Chair Jay Powell Gets Comfortable With the Inflation HawksPosted: March 22, 2022 Filed under: Automobiles, Economy, Government, Monetary Policy | Tags: Federal Reserve, Jerome Powell, new car prices, recession, used car prices 7 Comments
Pandemic-era inflation pressures were not transitory after all. The inflation watchers I follow never believed the narrative given the Fed’s insistence on maintaining historically accommodative policy well past its expiration date. Indeed, the transitory in the economy turned out to be the deflationary psychology of Federal Reserve Chair Jerome Powell.
The journey has been quite a ride for Fed-speak. In July 2020, Powell reassured an economy in lockdown shock that the Fed is “not thinking about thinking about raising rates.” When murmurs and then gripes about creeping inflation emerged in early 2021, Powell insisted inflation pressures would be transitory. In late April of that year, Powell explained the theory at that time behind transitory inflation. Transitory stretched out longer and longer and longer, until finally in December, 2021 testimony Powell essentially asked everyone to leave him alone about the unfortunate and untimely phrase. Now, with inflationary pressures worsening, Powell has found inflationista fervor. Powell even declared that the Fed is ready to take rates higher than the neutral rate. The mad scramble has begun; the Fed wants to get a raging fire under control.
A Pivotal Speech
Today, March 21, 2022, Powell gave what I think is the pivotal speech of his career as Fed chair. With the appropriately ominous title “Restoring Price Stability“, Powell started with this proclamation to the 38th Annual Economic Policy Conference National Association for Business Economics assembled in Washington, D.C. (emphasis mine):
“…the current picture is plain to see: The labor market is very strong, and inflation is much too high. My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation. There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability. We are committed to restoring price stability while preserving a strong labor market.”
For the folks who might still be in transitory thinking, Powell went on to clarify “…the inflation outlook had deteriorated significantly this year even before Russia’s invasion of Ukraine.”
In racing against the wildfire, Powell and the Fed have an ambitious goal. They want to avoid a recession by tapping the brakes on excessive demand in the economy just enough to gently match limited supply. The strong labor market is both a blessing and a curse in this effort. Powell did not use the term “wage-price spiral” inflation spiral”, but he essentially described such a potential dynamic for today’s economy. Companies are struggling to hire. Employees are shifting into new jobs to gain higher wages.
“There are far more job openings going unfilled today than before the pandemic, despite today’s unemployment rate being higher. Indeed, there are a record 1.7 posted job openings for each person who is looking for work. Record numbers of people are quitting jobs each month, typically to take another job with higher pay. And nominal wages are rising at the fastest pace in decades, with the gains strongest for those at the lower end of the wage distribution and among production and nonsupervisory workers”
Powell summarized: “Overall, the labor market is strong but showing a clear imbalance of supply and demand.” Thus, the Fed feels compelled to “moderate demand growth.” In the process the Fed hopes that the labor market’s very strength will withstand a period of aggressive monetary tightening.
Powell explained that the big surprise came from the stubborn persistence of “supply-side frictions.” The economy cannot handle the rapacious demand in today’s economy without sending prices ever higher. In turn, spiraling inflation threatens to erode wage gains especially for lower-income workers.
No Time to Wait Anymore
Interestingly, Powell provided automobile prices as a good example of the inflation problem. There was a time when commentators insisted soaring car prices would be transitory. Auto prices are now transitory complete. Powell lamented “production remains below pre-pandemic levels, and an expected sharp decline in prices has been repeatedly postponed.” Prices for new cars soared almost all of last year and suddenly look ready to take off again. Used car prices soared even more and could lift again if new car prices rev up again. Regardless, no “base effects” here as worker’s wage gains look sure to come under more pressure.
Source: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: New Vehicles in U.S. City Average [CUSR0000SETA01], retrieved from FRED, Federal Reserve Bank of St. Louis, March 21, 2022.
Source: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Used Cars and Trucks in U.S. City Average [CUSR0000SETA02], retrieved from FRED, Federal Reserve Bank of St. Louis, March 21, 2022.
These mounting pressures have forced the Fed’s hand. The Fed senses it has no time to wait anymore. The Fed is no longer content to wait for the conventional expectations of normalization to bear fruit. In an inflation emergency the Fed needs to act now… (emphasis mine).
“It continues to seem likely that hoped-for supply-side healing will come over time as the world ultimately settles into some new normal, but the timing and scope of that relief are highly uncertain. In the meantime, as we set policy, we will be looking to actual progress on these issues and not assuming significant near-term supply-side relief.”
Inflation is so strong now that Powell has to look out 3 years to envision inflation returning to the Fed’s target of 2%: “I believe that these policy actions and those to come will help bring inflation down near 2 percent over the next 3 years.”
Recession? What Recession?
No Federal Reserve has ever predicted a recession. The central agent trying to command the economy has a vested interest in projecting utmost confidence in its navigation abilities. Accordingly, Powell looked to history as proof that the Fed can pull off the spectacle of the soft landing for the economy:
“I believe that the historical record provides some grounds for optimism: Soft, or at least soft-ish, landings have been relatively common in U.S. monetary history. In three episodes—in 1965, 1984, and 1994—the Fed raised the federal funds rate significantly in response to perceived overheating without precipitating a recession…In other cases, recessions chronologically followed the conclusion of a tightening cycle, but the recessions were not apparently due to excessive tightening of monetary policy. For example, the tightening from 2015 to 2019 was followed by the pandemic-induced recession.”
The Fed is also encouraged by an economy “well positioned to handle tighter monetary policy.”
Powell formerly insisted the Fed would hold rates lower for longer in order to achieve an exceptionally low unemployment rate. The current path flips to the opposite direction. The Fed is willing to go right past the point of neutral rates to get the fire under control: “if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
Transitory complete. Bring on the inflation hawks.
Be careful out there!
The Fed Asks “What Inflation?”Posted: June 23, 2014 Filed under: Economy, Government, Monetary Policy | Tags: CPI, Federal Reserve, Monetary Policy, PCE Leave a comment
Last week, headlines and pundits were hot and bothered about the potential for the Federal Reserve to fall behind the curve on inflation. While my on-going assumption is that the Fed will indeed chose much higher inflation rather than risk ending the economic recovery with higher rates, I think the current hand-wringing by some is premature. In fact, it seems more the result of either boredom with the Fed’s business as usual policy stance and/or the anxiety on the part of some stock market bears looking for any kind of catalyst to shake the market out of its low volatility slumber.
I was so surprised at all the hand-wringing over a “business as usual” policy statement that I rolled the tape on the press conference. I was wondering what I missed, I actually listened to the conference call a second time (yes, it was painful). The experience made me even more convinced the market over-reacted just as much as it did when Yellen carelessly suggested rates might increase earlier than the late 2015 market projection.
Recent inflation numbers apparently increased expectations that the Fed might show a more hawkish tone. This is reflected best in the first question of the press conference from Steve Liesman of CNBC:
“Is every reason to expect, Madam Chair, that the PCE inflation rate, which is followed by the Fed, looks likely to exceed your 2016 consensus forecast next week? Does this suggest that the Federal Reserve is behind the curve on inflation? And what tolerance is there for higher inflation at the Federal Reserve? And if it’s above the 2 percent target, then how is that not kind of blowing through a target the same way you blew through the six and a half percent unemployment target in that they become these soft targets?”
This was a leading question, especially considering that Yellen made it very plain in her introduction that the inflation readings remain benign. Moreover, long-term expectations for inflation remain tame (also see the Fed’s latest projections). Most importantly, the year-over-year change in the PCE, the Personal Consumption Expenditure, reached the 2.0% target in early 2012 only to quickly plunge from there. Not only might it be premature to project a 2% reading for next week’s release, but there is nothing to suggest that this time is different. The Federal Reserve has the least control over the non-core prices of food and energy, so the escalation of violence and turmoil in Iraq is definitely not the kind of event that the Fed would try to offset with monetary policy.
The Fed still can’t tease the market into sustaining pre-recession inflation levels…
Source: St. Louis Federal Reserve
Perhap’s Yellen’s poor response ignited the flames of disappointment. Yellen did not address PCE directly and instead talked about the noise in the Consumer Price Index (CPI) while reiterating the Fed’s standard guidance on inflation:
“So, I think recent readings on, for example, the CPI index have been a bit on the high side, but I think it’s–the data that we’re seeing is noisy. I think it’s important to remember that broadly speaking, inflation is evolving in line with the committee’s expectations. The committee it has expected a gradual return in inflation toward its 2 percent objective. And I think the recent evidence we have seen, abstracting from the noise, suggests that we are moving back gradually over time toward our 2 percent objective and I see things roughly in line with where we expected inflation to be.”
Ironically, Yellen could have just pointed to the longer-term trend in the CPI. This view dominates any shorter-term noise….
The overall trend on CPI continues to point downward
Source: St. Louis Federal Reserve
The most bizarre part of the buzz on the Fed’s supposed willingness to ignore inflation is that Yellen re-affirmed, re-emphasized that the Fed is all about meeting its price target. It will not tolerate deviations in EITHER direction for long:
“…we would not willingly see a prolonged period in which inflation persistently runs below our objective or above our objective and that remains true. So that hasn’t changed at all in terms of the committee’s tolerance for permanent deviations from our objective.”
This was Yellen’s response to Liesman asking about the Fed’s tolerance for higher-than-target inflation.
I feel irony in my skepticism about a Fed ignoring a budding inflation threat: this is the core scenario that has kept me long-term in the gold (GLD) and silver (SLV) trades. My thesis/assumption back in 2009/2010 was that the Federal Reserve would be extremely reluctant to tighten policy even as the economy strengthened out of fear that rate hikes would quickly kill the economy. By the time the Fed was ready to hike rates, the “inflation genie” would already be out the bottle. Granted, I am not nearly as rabid about this view, especially since I have come to appreciate the deep entrenchment of the lingering post-recession deflationist psychology in the economy.
So, overall, I am very skeptical that this episode is the long-awaited lift-off of inflation and a lagging Fed. I actually think the Fed is right to look through the current “warming” in inflation readings, and I think it will find vindication just as the Bank of England did during a similar episode under former Governor Mervyn King. When the Fed asks “what inflation”, I find myself surprisingly agreeing for now…
To me, the data do not support the notion that broad-based inflation is taking hold in the economy. We do not even have wage pressures, not to mention all the slack that remains in the economy as evidenced in part by extremely low levels of housing production. Just do a web search or read mainstream financial magazines to see anecdotally how many people are still worried about the sustainability of the so far very weak housing recovery. I find it hard to believe we will get strong inflation with all this weakness and deflationary fears. On the commodity side, copper and iron ore have experienced major price declines in recent months that also fly in the face of any kind of sustained inflationary pressure in the economy.
Full disclosure: long GLD, SLV.
U.S. Postal Service increases prices an average of 5% for shipping servicesPosted: November 23, 2011 Filed under: Government, Shipping | Tags: postal service 1 Comment
The U.S. Postal service is raising prices in an effort to bring in enough revenue to avoid bankruptcy. Prices are going up for a whole host of shipping services including a 3.1% increase for priority mail. The price of a first class postage stamp is still increasing a penny from 44 cents to 45 cents as earlier scheduled for January 22.
For more details see AP story: “Postal prices going up for express, priority mail.”
The Rice Panic of 2007Posted: November 8, 2011 Filed under: Agriculture, Asia, Government, trade war | Tags: bubble, export controls, manipulation, price controls, rice Leave a comment
On November 4, 2011, NPR’s Planet Money did a “blast from the past” podcast reviewing the course of events that led to the rice panic of 2007 and its eventual end. From India’s decision to ban rice exports to hoarding across Asia to corrupt government manipulation in the Philippines of a then vulnerable rice market, we get to reminisce about how rice prices doubled ad then almost doubled again in just four months. The panic finally ended after economists convinced the U.S. to allow Japan to sell its stockpile of rice that it maintains as part of a trade agreement that forces Japan to buy rice from the U.S. it does not want. Ironically enough, the rice was never sold but the psychological impact of the announcement was enough to end the hoarding and bring the market back to a semblance of sanity.
A truly fascinating tale of a completely avoidable bubble in the price of rice.
The Federal Reserve finally tries to fight a bubble…in the price of farmlandPosted: October 18, 2011 Filed under: Agriculture, Banks, Government | Tags: farmland, Federal Reserve, regulation Leave a comment
(Hat tip to a friend who pointed me to this article)
Under Alan Greenspan, the Federal Reserve was known to stand on the sidelines while bubbles in asset prices grew and grew. Greenspan had a lot more faith in the Federal Reserve’s ability to mop up the subsequent mess caused by a bubble’s collapse than in its ability to stop a bubble, much less identify one.
It seems times have changed. On October 13, Businessweek chronicled the Fed’s efforts to make sure that soaring prices in agricultural land do not lead to another messy bubble and economic calamity. Prices have indeed soared across the midwestern United States:
“The Kansas City Fed reported land values were 20 percent higher than a year ago. The Chicago Fed reported a 17 percent increase in its district, the fastest increase since the 1970s. Nonirrigated farmland in the Minneapolis Fed district increased 22 percent in price.”
The factors driving these increases are the same as I reported from a related Planet Money piece: “Land prices have doubled in Iowa over the past few years“: “elevated crop prices, soaring farm income, and record-low interest rates.”
As a result, nervous regulators are demanding rigorous stress tests of banks up to their gills in agricultural loans. Businessweek also reports that regulators are “…scrutinizing the lending standards, loan documentation, and risk management at the country’s 2,144 agriculture banks.”
I will be very interested in the outcome of all this scrutiny. The same Federal Reserve that helped create record low interest rates is working to ameliorate the impact of those very same interest rates. This episode is a reminder that flooding an economy with liquidity does not produce equal outcomes for all sectors. Recovery and prosperity does not even need to appear in the sectors most impacted by the malaise the Federal Reserve scrambles to repair. Instead, the money tends to collect where it will generate the highest returns due to other economic factors. Currently, it seems that the bet is on farming. I believe the Federal Reserve was aiming for housing…
San Francisco earns windfall from driving up the cost of parking on holidaysPosted: October 13, 2011 Filed under: Disguised inflation, Government | Tags: municipal government, parking fees, San Francisco Leave a comment
Parking enforcement is one of the sneakier ways a local government can drive up to costs of living in a city without generating direct protest and sometimes without generating even much notice. The San Francisco Chronicle reports that in the last fiscal year, the city of San Francisco raked in $1.5M in additional revenue – $660K from meters and $820K from parking fines – from removing Memorial Day, the Fourth of July, Labor Day and Veterans Day as meter-free holidays. The change occurred July, 2009 and has produced eight holidays that are no longer meter-free.
While the city celebrates the extra money it makes, the citizens can only lament the extra inconvenience and hassle of remembering to pay meters on these holidays, not to mention the additional costs in parking. The disparity in fines versus collected fees likely demonstrates (or confirms for me) that parking rules are mainly about generating lucrative fines.
For more details see “Holiday parking enforcement: cash cow for the city“
Argentine government hunts down inflation reporters. Protecting spending programs?Posted: September 24, 2011 Filed under: Government, newspapers | Tags: Argentina, censorship, govt_stimulus, Shadow Government Statistics Leave a comment
The Argentine government says inflation is 9.8%. Everyone else thinks it could be as high as 20%. President Cristina Fernandez has decided to hunt down those reporters who dare challenge official government statistics which have been reportedly manipulated to lower the government’s borrowing costs. This is definitely a story that makes you appreciate the freedom of the press…and remind you how important it is not to let politics influence the collection of important economic data.
For more details see: “Argentina targets news reporting of inflation data.”
Part of the government’s motivation may also be to protect profligate spending that is boosting the economy at least in nominal terms. For more on the aggressive spending programs launched by Fernandez see “Argentine economic plan: Raise spending, salaries.”
Venezuela looks to expand price controlsPosted: August 14, 2011 Filed under: Government | Tags: price controls, regulation, Venezuela Leave a comment
If inflation levels remain higher than you like, simply regulate inflation out of existence, right? This logic appears to be the approach of the Venezuelan government as it seeks to curb what it sees as rampant speculation and unfair business practices. According to Nightly Business Report, inflation was 27% last year in Venezuela. The proposed Law for Fair Costs and Prices will create the Superintendence of Costs and Prices that will determine the prices of certain products in an effort to curb inflation. The law bolsters existing price control efforts.
Look for inflation to get worse, black markets to grow, and scarcity of goods to get more severe. It seems to me Venezuela is going after symptoms rather than causes.
For more detail, see “Analysts: Pending price-control law could backfire.”
Changing the measure of inflation to generate more government revenuePosted: July 8, 2011 Filed under: CPI, Government, Taxes | Tags: chained consumer price index Leave a comment
I read a short article in Planet Money that reminded me why I tend not to pay attention to official government inflation statistics. The government estimates it could generate $200B in extra revenues over a decade by making the switch. This reminds me that the folks generating the index essentially have a vested interest in the numbers themselves or at least can face political pressures to calculate and/or interpret them in ways favorable to policy.
See “The Wonky Inflation Tweak Worth Over $200 Billion” for more.
Bank of England Governor King continues to bet on inflation taking care of itselfPosted: June 16, 2011 Filed under: Government, Monetary Policy, United Kingdom | Tags: Bank of England, Mervyn King, Monetary Policy 2 Comments
On June 15, Bank of England Governor Mervyn King spoke at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House. The speech covered very familiar themes for King and the Bank of England.
King begins by acknowledging the squeeze on the current economy:
“The challenge facing monetary policy is obvious – the combination of high consumer price inflation and weak economic growth. Both of these might seem surprising given the large amount of spare capacity in the economy. But the rise in world energy and other commodity prices, and the need to reduce both the external and budget deficits, are squeezing real living standards, pushing up on consumer price inflation and slowing domestic consumption.”
Over the years, King has consistently hammered on the theme of rebalancing in the UK’s economy: a transition away from domestic consumption and toward exports and the business investment required to support this shift. King indicated that the rebalancing underway will continue for several more years. This process has necessitated the devaluation of the currency. Interestingly, King cleverly attributes the devaluation to market forces while indicating the Monetary Policy Committee (MPC) chose not to counter-act the pressures on the currency:
“A necessary precondition for that rebalancing was a fall in the real exchange rate. Markets anticipated that need. The nominal effective sterling exchange rate fell by around 25% between the start of the crisis in 2007 and the beginning of 2009, since when it has been broadly stable…
…We could have raised Bank Rate significantly so that inflation today would be closer to the target. But that would not have prevented the squeeze on living standards arising from higher oil and commodity prices and the measures necessary to reduce our twin deficits. And it would have meant a weaker recovery, or even further falls in output…”
In other words, the MPC decided to focus on the implications of a weak economy over the implications of high inflation, judging the former to be the greater threat. In doing so, King has frequently noted that today’s high inflation is temporary, thus rationalizing on-going accomodative monetary policy and low interest rates in the face of high inflation. The primary blame for high inflation has shifted from hikes in taxes (the Value Added Tax or VAT) to commodity and energy prices, both presumably out of the control of monetary policy. Internally, conditions do not exist for sustaining “domestically generated” inflation:
“So far, subdued rates of increase in average earnings, as well as remarkably – some might say disturbingly – low growth rates of broad money have provided strong signals that inflation will fall back in due course. Banks are still contracting balance sheets and reducing leverage. Spreads between Bank Rate and the interest rates charged to many borrowers remain at unprecedentedly high levels, if indeed borrowers are able to access credit at all.”
King really caught my attention when he provided two key conditions that would actually compel rate hikes:
- A pickup in domestically generated inflation
- A contraction in the spreads between Bank Rate and the interest rates charged to many borrowers
Given the dour outlook for the economy and an on-going reblancing in the economy, I continue to assume that rate hikes in the UK are somewhere off in a very distant future. King has proven quite adapt in coming up with reasons for maintaining loose monetary policy, and I continue to see strong evidence that he is reluctant to tighten for fear it could upset the rebalancing he so deeply desires. Indeed, King notes that there is no way to tell when the MPC may hike rates:
“Uncertainty inevitably surrounds both the speed of the rebalancing and the impact of today’s consumer price inflation on tomorrow’s domestically generated inflation. So it is simply impossible to know now at what point monetary tightening will begin.”
Inflation may be forcing China to let its currency appreciatePosted: April 29, 2011 Filed under: China, Currencies, Government, Monetary Policy | Tags: China, yuan 2 Comments
In “Beijing turns to currency to cool inflation“, the Associated Press gives a good summary of China’s current problems with inflation, including the following:
“Economists blame China’s inflation on the dual pressures of consumer demand that is outstripping food supplies and a bank lending boom they say Beijing allowed to run too long after it helped the country rebound quickly from the 2008 global crisis.
Attempts at price controls, subsidies for the poor and orders to local leaders to guarantee adequate vegetable supplies have had mixed results.”
The failure to control inflation to-date is forcing China to allow the currency to appreciate faster. The near-term increases still seem modest at 5% (against the dollar), so it will be interesting to see whether China continues pushing harder on non-currency methods.
China’s currency is not traded on open markets, but if it were, it seems the currency would soar given current conditions.
The U.S. Dollar Can’t Find A BottomPosted: April 29, 2011 Filed under: Currencies, gold, Government, Monetary Policy | Tags: gold, silver, U.S. dollar Leave a comment
CNBC reported that “Adjusted For Inflation, Dollar Hits Fiat-Era Low.” Economists at Deutsche Bank calculated the value of the dollar on a trade-weighted basis and then made adjustments for inflation. Their conclusion is that the dollar is at its lowest point since the U.S. went off the gold standard under President Richard Nixon.
The full article is worth a read but here is a key quote:
“The recent parabolic spike in silver and to a lesser degree gold, shows that the market considers a ‘disorderly decline’ of the U.S. dollar an increasing possibility…”
Click here to see how the U.S. stock market remains in an 11-year sell-off when priced in gold.
Gold also looks to continue higher. According to a recent article in Bloomberg:
“Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.”
Disclosure: author owns GLD, PAAS
Price of soap and detergent going up in ChinaPosted: March 28, 2011 Filed under: China, Government, Retail | Tags: detergent, Proctor & Gamble, soap, Unliever Leave a comment
Reuters reports that Proctor & Gamble Company (PG) and Unliever (UL) are hiking the price of soap and detergent in China by 15% (see here). This action has apparently attracted the attention of government authorities who have promised to “investigate.”
Battling inflation is a top priority in 2011 for ChinaPosted: March 7, 2011 Filed under: Agriculture, China, food, Government | Tags: China, inflation rate, Monetary Policy Leave a comment
In “China says cannot lower guard against inflation“, Reuters reports that “China’s Premier Wen Jiabao said on Saturday inflation was affecting social stability, and taming it was a top priority for this year…The government is aiming for annual average inflation of 4 percent in 2011, higher than the 3.3 percent rise in consumer prices last year.”
The article notes several measures Chinese authorities are taking to curb inflation, everything from increasing food supplies, reducing transportation costs, and controlling the money supply and bank lending. These measures seem to be working, but the Chinese are not declaring victory just yet…
France joins a growing group of nations concerned about inflationPosted: February 18, 2011 Filed under: Government, Monetary Policy | Tags: Bank of England, France Leave a comment
In “G-20 Stung by Faster Inflation as Imbalance Dispute Rages“, Bloomberg reports that French Finance Minister Christine Lagarde has added her voice to the growing group of nations concerned about inflation:
“We clearly need to keep inflation at bay…Too much inflation is not going to be conducive to growth.”
While these conclusions are obvious, the remarkable quality of these comments is that they come at a time when inflation remains a concern amongst developing and emerging economies and not the (relatively) stagnating ones of Europe and the United States.
Only time will tell whether comments like these will translate into any changes in monetary policy anytime soon. For example, Governor Mervyn King made it quite clear this week in his discussion of the Bank of England’s Inflation Report, that he has no intention of changing monetary policy anytime soon even with inflation continuing to print well above the Bank’s mandated target of 2%.
Tuition costs outpace inflation againPosted: October 28, 2010 Filed under: Government, Higher ed | Tags: tuition 2 Comments
According to the NY Times, The College Board’s annual report shows tuition costs at public and private universities outpaced inflation yet again this year:
“…four-year public universities increased their published tuition and fees almost 8 percent this year, to an average of $7,605, according to the College Board’s annual reports. When room and board are included, the average in-state student at a public university now pays $16,140 a year. At private nonprofit colleges and universities, tuition rose 4.5 percent to an average of $27,293, or $36,993 with room and board…
…Over the last decade, published tuition and fees at public four-year colleges and universities increased each year at an average of 5.6 percent beyond the rate of inflation.”
The spiraling cost of higher education has arguably been supported by generous federal assistance:
“In the last five years…average published tuition and fees increased by about 24 percent at public four-year colleges and universities, 17 percent at private nonprofit four-year institutions, and 11 percent at public two-year colleges — but in each sector, the net inflation-adjusted price, taking into account both grants and federal tax benefits, decreased over the period.”
These pricing dynamics show an increasing shift of funding for public higher education from states to the Federal government.
U.S. Postal Service Proposes Price IncreasesPosted: July 7, 2010 Filed under: Government, Shipping | Tags: postal service, stamps Leave a comment
The cost of mailing a letter will likely go up soon. The U.S. Postal Service announced yesterday that it wants to increase the price of a first class postage stamp by another 2 cents or 4.5% as of January, 2011. The Postal Service cites on-going and worsening financial difficulties as the main force driving prices ever upward:
“Faced with plummeting mail volume traced to the recession and increased use of the Internet, the Postal Service is projecting a deficit of nearly $7 billion for the next fiscal year. Despite eliminating millions of work hours and reducing expenses by more than $1 billion every year since 2001, a budget gap remains….
….’There is no one single solution to the dire financial situation that the Postal Service faces…These proposed rate adjustments are moderate and part of a fair and balanced approach to insuring mail service for all Americans well into the future.'”
Atlanta considers tax increases to fill growing funding gap for pensionsPosted: February 23, 2010 Filed under: Government, Taxes | Tags: Atlanta, pension Leave a comment
Unfunded pensions are a growing problem around the country for local and state governments. The Atlanta-Journal Constitution reports that the city of Atlanta in Georgia has set up a Pension Reform Panel to figure out how to solve its own funding gap. This panel is considering increasing property and/or sales taxes as part of the solution.
Atlanta faces a very large problem:
“More than 20 percent of city spending is devoted to pensions. The city is spending nearly as much money on pensions as it does for its police department. At its current pace, the mayor told reporters Monday, it will be tougher for the city to provide services such as fixing sidewalks and adding more parks and greenspace…
…The amount of money Atlanta spends on pensions has more than doubled since 2001. That year, the city spent $55 million; it is expected to spend about $125 million on pensions in the 12-month period that ends June 30. By 2015, the annual cost to the city is estimated at $160 million.”
Like so many local and state governments, Atlanta increased pensions during times of relative prosperity with no real plan for funding in the future and optimistic assumptions about returns for investments.
“Atlanta’s three pension plans covering police, firefighters and general employees have long been underfunded. In 2001 and 2005, the City Council approved several changes to increase retirement benefits. Those changes, however, were made without determining a way to pay for them.
Meanwhile, the three pension funds have not earned as much as anticipated. As a result, the plans are about 53 percent funded…The city has an unfunded liability of about $1.5 billion…In 2001, the unfunded liability was $321 million.”
City of Atlanta adds fee for paying water bills onlinePosted: February 3, 2010 Filed under: Government, Utilities | Tags: bill_payment Leave a comment
Online billing is supposed to be a convenience and a cheaper alternative to paper billing. However, certain online bills are apparently MORE expensive to process online.
In January, the city of Atlanta instituted a $4.50 fee to pay water bills online. Other Georgia government entities like the Department of Revenue have charged an online “convenience fee” for several years for paying bills online.
The AJC reports that Atlanta’s Watershed Management Department was charged $700,000 by banks and credit card companies to process these payments. Banks do NOT charge this fee when using online/electronic bill pay systems directly from a bank account.