DA - Economy DA - Michigan 7 2023 CMFP

Great work from Alizah, Billy, Claire, and Sahil.
Uniqueness
UQ – Inflation Down
Inflation cooling now, but slowly
Smialek & Casselman 6/30/23[Jeanna Smialek writes about the Federal Reserve and the economy for The Times. She previously covered economics at Bloomberg News. @jeannasmialek. Ben Casselman writes about economics, with a particular focus on stories involving data. He previously reported for FiveThirtyEight and The Wall Street Journal, (“ Inflation and Spending Cooled in May, a Glimmer of Good News for the Fed”, https://www.nytimes.com/2023/06/30/business/economy/inflation-may-federal-reserve.html)]//ca
Consumer spending slowed and the Federal Reserve’s preferred inflation gauge continued to moderate in May, the latest signs that the cool-down that policymakers have been aiming for is materializing — albeit more haltingly than they might prefer. U.S. consumers spent just 0.1 percent more in May than the month before, the Commerce Department said on Friday. That was down from 0.6 percent growth in April, which was itself weaker than previously reported. Adjusted for inflation, spending in May was flat. Slower spending may sound like bad news: Consumption is, after all, the engine of economic growth in America. But Fed officials have been raising interest rates to try to restrain consumer and business demand, hoping that such a weakening will force companies to stop raising prices so quickly. That could allow inflation, which has been rapid for more than two years, to return to a normal pace. For now, price increases are moderating but remain more stubborn than Fed officials might prefer. Overall inflation cooled to 3.8 percent in the year through May, Friday’s report showed, the first time it has slipped below 4 percent since early 2021. But a “core” inflation measure that stripped out food and fuel costs — which move around a lot — remained stubbornly high. Officials closely watch that measure for a sense of how quickly prices will increase in the months and years ahead. While core inflation moderated to 4.6 percent in May, a softer reading than the 4.7 percent economists had forecast, it has hovered right around that pace since December 2022. Inflation F.A.Q. Card 1 of 5 What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys. What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems. Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth. How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas. Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better. “It’s progress,” Omair Sharif, the founder of Inflation Insights, said of the report as a whole. “But things are still just way too high.” More modest overall inflation is taking some pressure off consumers: Cheaper tanks of gas and less rapid price increases in the grocery aisle are helping paychecks go further. But for officials at the Fed, signs that inflation remains stubborn under the surface have been a reason to worry. Officials believe that they need to wrestle core price increases lower to make sure that the economy’s future is one of modest and steady price increases. Fed policymakers have been raising interest rates since March 2022 in a bid to cool the economy and bring inflation back under control, and they have projected that they will raise them slightly more in 2023. Making it more expensive to get a home loan or expand a business can drag on economic momentum. But a range of recent data points have suggested that the Fed’s moves are so far failing to fully sap the economy of its steam. The housing market weakened sharply last year, but it has shown signs of beginning to recover. Growth was faster than previously believed early this year, data this week showed. People are still buying cars, taking vacations and eating out, based on a range of real-time data trackers. Editors’ Picks Ancient Art or Fashion Forward? Both, Says a Top Batik Designer Want to Run a World-Record Time? Follow the Green Lights. How Do I Ask a Close Friend’s Husband to Be Our Sperm Donor? In fact, Kathy Bostjancic, chief economist at Nationwide, cautioned against reading too much into the slowdown in consumer spending in the fresh May data. She thought that some of the pullback was probably owed to a limited supply of cars, which prevented more auto sales. Still, she said the report was marginally good news for policymakers. The fact that April spending was weaker than the strong uptick previously reported was probably a welcome development. “It is better than the alternative,” Ms. Bostjancic said. And, the report contained subtle but important hints that consumers are becoming more cautious. After months of drawing down savings amid rising prices, Americans have begun saving more, which historically has been a sign of worries about the economy. “Consumers are saving more and spending less, perhaps out of caution as most believe a recession is either here or imminent,” Robert Frick, corporate economist with Navy Federal Credit Union, wrote in a note to clients. Understand Inflation and How It Affects You Falling Prices: Rapid inflation has been a problem in the United States for more than two years, but the tide appears to be turning. Our reporter discusses whether the decline is a result of careful policymaking, or more of a lucky accident. Is the Struggle Over?: While less expensive gas and slower grocery price adjustments have helped overall inflation to fall, Fed policymakers and many outside economists see continued reasons for concern. Corporate Maneuvers: Many big businesses have continued raising prices even as the costs of oil, transportation, food ingredients and other raw materials have fallen. That could further bolster inflation. That could help to make the Fed more comfortable that rates are high enough — or nearly high enough — to restrain the economy and bring inflation back to target over time. Policymakers have raised interest rates to 5 percent, but they skipped a rate increase at their June meeting, after 10 straight moves, to give themselves time to assess how much more would be needed. Officials forecast that they could lift rates to 5.5 percent by the end of the year. Investors had been betting on only one more quarter-point move this year, but they have in recent days nudged up the chances of two moves before the end of 2023. Those odds fell slightly after Friday’s report. Markets broadly welcomed the fresh data, helping to push the S&P 500 stock index more than 1 percent higher on Friday morning. Ms. Bostjancic said she believed that the Fed would most likely raise interest rates in July still but that Friday’s consumer spending data could — at least at the margin — “ease the pressure” for further changes beyond that. Jerome H. Powell, the Fed chair, emphasized this week at an event in Madrid that the outlook for how much more rates might move this year was uncertain. Inflation has consistently been “more persistent and stronger than expected,” Mr. Powell said. “At some point, that may change. And I think we have to be ready to follow the data and be a little patient as we let this unfold.”
Inflation declining now — graph proves.
Caldwell 23 — Preston Caldwell, senior U.S. economist for Morningstar Research Services LLC, holds a Master of Business Administration from Rice University, 2023 (“Why We Expect Inflation to Fall in 2023,” Morningstar, May 26th, Available Online at https://www.morningstar.com/economy/why-we-expect-inflation-fall-2023-2, Accessed 06-24-2023)
Inflation in 2022 reached the highest level in over 40 years. But we expect inflation to fall dramatically over the next year.
Understanding why inflation will fall requires understanding why inflation became so bad in the first place. Over 2021 and 2022, strong consumer demand ran into a brick wall of supply constraints, causing prices to explode in many industries, especially food, energy, and durable goods.
But demand is cooling off, thanks greatly to the Federal Reserve’s interest-rate hikes. Just as importantly, supply constraints are disappearing. With the main causes of high inflation now running in reverse gear, the economy is set to receive a large deflationary impulse.
After peaking at 6.2% in 2022, we expect inflation to fall to 3.5% for 2023. Over 2024 to 2027, we expect inflation to average just 1.8%—below the Fed’s 2% target.
Inflation projected to cool down.
Caldwell 23 — Preston Caldwell, senior U.S. economist for Morningstar Research Services LLC, holds a Master of Business Administration from Rice University, 2023 (“Why We Expect Inflation to Fall in 2023,” Morningstar, May 26th, Available Online at https://www.morningstar.com/economy/why-we-expect-inflation-fall-2023-2, Accessed 06-24-2023)
We Forecast Inflation for 2023-27 From a Bottom-Up Perspective
Given the role of industry-specific shocks, we forecast inflation using a bottom-up methodology.
We’re projecting large deflation in prices for durable goods, food, and energy over 2023-27.
For durable goods, resolution of the semiconductor shortage should play a large role in expanding supply. A normalization of consumer spending mix will also shift demand away from durables (and other goods) and back into services.
For food and energy, prices should subside as these industries adjust to disruption from the Russia-Ukraine conflict and other factors.
We don’t expect the price spikes in energy and durables to be replaced by new problems elsewhere in the economy. We expect moderate wage growth and the absence of any long-lasting supply disruptions to keep general inflation at restrained levels. Inflation expectations (which can fuel high inflation in a self-fulfilling prophecy) also look restrained.
Fed tightening will cool off the overall economy substantially in 2023 and 2024, extinguishing the inflationary fire before it gets out of control.
The economy is projected to cool down by 2024.
Bundrick 23 — Hal M. Bundrick, former NerdWallet personal finance writer, senior investment specialist for Wall Street firms, 2023 (“When Will Inflation Go Down?,” NerdWallet, June 14th, Available Online at https://www.nerdwallet.com/article/finance/timeline-for-lower-prices-and-rates, Accessed 06-24-2023)
In 2024
A September CNBC survey of analysts, economists and fund managers reveals that most believe that by 2024 inflation will have sunk close to the Fed's 2% target.
If so, we'll enjoy lower prices for groceries, consumer goods and the general cost of living. However, we'll also likely experience higher unemployment and a sputtering economy.
Once the Fed reaches its 2% inflation goal, it will begin lowering interest rates to restimulate the economy.
Yes, lower rates.
These scenarios are based on a “just right” economic reaction to the Fed's interest rate action. Of course, as our pandemic times prove: There are plenty of unknowns that can spoil the best-laid plans.
Inflation is declining — future rate hikes prove.
Rugaber 23 — Christopher Rugaber, Economics Reporter for Associated Press, holds an M.A. in political science from American university, holds a B.A. in English from Dickinson College, 2023 (“Fed’s Powell: More rate hikes are likely this year to fight still-high inflation,” The San Diego Union, June 21st, Available Online at https://www.sandiegouniontribune.com/business/nation/story/2023-06-20/powell-to-face-capitol-hill-hearing-at-a-time-of-rising-uncertainty-over-feds-interest-rate-plans, Accessed 06-24-2023)
With inflation still well above the Fed’s 2% target, most economists have said they believe that a rate hike at its next meeting in late July is all but assured. What actions the central bank might take after that remains much less clear. The policymakers indicated last week that they expect to raise rates twice more this year. Yet they might not follow through if economic data suggests that inflation is falling quickly back to their target level.
Speaking at a news conference last week, Powell said there were no plans to raise rates at every other meeting or to follow any other particular time frame. Instead, as he reiterated Wednesday, Fed officials will monitor economic data and make their rate decisions “meeting by meeting.”
The central bank’s streak of rate increases have made borrowing for consumers and businesses more expensive across a range of loans, including home and auto loans, credit cards and business borrowing. The goal has been to cool inflation by slowing spending and hiring.
Last year, the Fed jacked up its benchmark rate at a breakneck pace, including by three-quarters of a point on four occasions. Now, with year-over-year inflation having eased from 9.1% a year ago to 4%, Powell has indicated that the Fed wants to move much more slowly.
A slower pace of rate increases, Powell has said, could help the Fed achieve a tricky feat: Weaken the economy enough to tame inflation, without undermining it so much as to cause a deep recession.
UQ – Consumer Spending
Increased sonsumer spending drives the economy
AP News 6/27/23 [The Associated Press is an independent global news organization dedicated to factual reporting. Founded in 1846, AP today remains the most trusted source of fast, accurate, unbiased news in all formats and the essential provider of the technology and services vital to the news business. More than half the world’s population sees AP journalism every day. (“US consumer confidence jumps to highest level since early 2022”, https://apnews.com/article/consumer-confidence-spending-economy-inflation-9988737f7e68178328df41b113cb32c6)]//ca
WASHINGTON (AP) — The American consumer’s confidence jumped in June to its highest level in 18 months as a strong labor market continues to buoy the U.S. economy.
The Conference Board reported Tuesday that its consumer confidence index rose to 109.7 in June from 102.5 in May. That’s the highest the reading has been since January of 2022 and much higher than economists had forecast.
The business research group’s present situation index — which measures consumers’ assessment of current business and labor market conditions — rose to 155.3 from 148.9 in May.
The board’s expectations index — a measure of consumers’ six-month outlook for income, business and labor conditions — climbed to 79.3 this month from 71.5 in May.
A reading under 80 often signals a recession in the coming year. The Conference Board noted that reading has come in below 80 every month but one since February of 2022.
The board said that consumers’ fears of a recession declined in June, with 69.3% of respondents saying a recession is somewhat or very likely in the next 12 months, down from 73.2% in May.
Consumer spending, which makes up about 70% of U.S. economic activity, has held up well despite the Federal Reserve raising interest rates in its effort to cool the economy and bring down persistent, four-decade high inflation. At its last meeting, the Fed elected not to increase its benchmark borrowing rate after raising it 10 straight times over 15 months.
Last month, the government reported that consumer spending jumped 0.8% from March to April, the biggest increase since January. Much of the increase was driven by spending on new cars, which soared 6.2%. The latest consumer spending report, which includes an important measure of inflation that the Fed monitors closely, comes out Friday.
Consumer prices in the U.S. rose again in April, and measures of underlying inflation stayed high. However, the latest data did provide some evidence of cooling inflation, particularly at the grocery store.
Regarding the job market, 46.8% of respondents said that jobs were plentiful, up from 43.3% in May.
The nation’s employers stepped up their hiring in May, adding a robust 339,000 jobs, well above expectations and evidence of enduring strength in an economy that the Federal Reserve is desperately trying to cool.
Economists surveyed by FactSet expected that consumer confidence rose much more modestly in June from May, to 103.9.
Links
Basic Income
2NC – Investor Certainty
A basic income would decimate it.
Fitzpatrick ’20 [Ed, Kelsey Berro, and David Rooney; M.B.A. in finance from New York University; B.S. in economics from Pace University; M.B.A from The University of Texas at Austin; J.P. Morgan Asset Management, “Will a “Blue Wave” carry UBI onto the shore?” https://am.jpmorgan.com/us/en/asset-management/institutional/insights/portfolio-insights/fixed-income/fixed-income-perspectives/will-a-blue-wave-carry-ubi-onto-the-shore/; Sahil]
From a markets perspective, our intuition tells us that investors would perceive more UBI-like policies as negative for risk assets and conducive to higher long-term treasury yields driven by an increase in inflation risk premium. Most likely volatility would rise and the dollar would weaken.
Introducing UBI and implementing minimum income would certainly raise the cost of labor for businesses. Corporations would likely be forced to pass along the costs to consumers, although their ability to do so without damaging demand is uncertain. Despite the potential inflationary risks of this type of policy, with the economy and labor markets still adjusting to a COVID-19 world, we believe the Fed would focus on promoting growth over fighting inflation (given their confidence in controlling inflation down the road). Easy fiscal policy coupled with loose monetary policy and rising realized inflation should be bad for the currency value of all USD denominated assets. While generally, inflation expectations are positively correlated with growth and risk assets, this could be a unique scenario in which inflation expectations decouple from risk assets in anticipation of a potential stagflationary scenario as fears of corporate profitably outweigh higher incomes for consumers.
It is difficult to craft a story where equities do well in the face of higher taxes, higher labor costs and higher cost of funding. Real yields are likely to remain low as the productive growth of the U.S. is perceived to be impaired by less labor force participation, higher fiscal burdens, lower productivity (at least initially) and less dynamism in corporate America. Inflation Breakevens will widen and cost of funding to the entire economy is likely to rise. The scenario has all the hallmarks of a stagflationary environment albeit more tame than the 70s and 80s.
2NC - Perception
Businesses despise the plan, even if it’s better for them.
Calnitsky ’18 [David; April 2018; Assistant Professor in the Department of Sociology at Western University, PhD in Sociology from the University of Wisconsin-Madison; Canadian Journal of Sociology, “If the Work Requirement is Strong,” p. 291-315; Sahil]
The likely mechanisms underlying the positions taken by business discussed above ought to be spelled out explicitly. Firms whose business strategies involve the employment of local labour will lose out in any policy that provides an outside stream of income. A world where labour has no alternatives to work is one where their reservation wage will be relatively low, and in order to survive they will have no choice but to sell their labour on the market. By contrast, an income maintenance policy that provides workers with an exi

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