Inflation is Still the Problem Rational Dissent Episode 014 Post-COVID structural shifts like deglobalization and tariffs have permanently eliminated the cheap goods deflation that previously offset services inflation, leaving the U.S. settled in a 3% inflation world where a 5% nominal growth rate justifies matching 5% interest rates. ----... Available on YT, Spotify, Apple Podcasts, Overcast, etc. Chapters 00:00 Introduction: Inflation Reality vs. Consensus 02:22 Nominal GDP Framework and 5% Yields 06:36 Core PCE, China, and the End of Goods Deflation 11:15 Protectionism, Tariffs, and the BYD Example 15:02 Why We Are Stuck in a 3% Inflation World 23:38 Rising Inflation Volatility and Remote Work 28:13 Monetary Policy: Why the Fed Must Focus on Nominal GDP 32:37 Closing Remarksshow more

Sorry Jim. Excess Powell easing, war and AI delusion is the only support for inflation above trend and those will or are fading.

Mr. Bianco, BYD stands for "Build Your Dreams". This a secondary point, but I think you've been saying something else.

Thats a nice look there for tv Jim.

So Mr Bianco, how can the public join your podcast to ask you questions?

Tariffs can cause a one-time price jump that later drops out of annual inflation. The loss of cheap imports you're describing is a separate reason the pressure could last longer.

I addressed this exact question in the Q&A. Tariffs are not a one-time price jump. They're a moving target, keeping prices higher than what it costs to manufacture in the United States.

Spot on Jim @biancoresearch

I keep coming back to this when I underwrite. If 5% on the 10-year is just normal now and not a spike, then the cap rates a lot of us bought at in 2021 aren't coming back, and holding on until they do isn't really a plan. I could be wrong, and I'd love to be. But I've started assuming a higher exit cap on everything and letting the deal prove me wrong.

The cheap goods deflation point is the one people skip. For years imports quietly held inflation down, and now that tailwind is gone, so 2% looks a lot harder to hit than the old forecasts assumed.

i ushered in deglobalization with brexit and popped the bond bubble trade war began in june 2016 fuck covid

Respectfully, never underestimate the power of lobbyists to undo sensible tariff policy. If it increases shareholder value, they will absolutely lobby to get tariffs removed and increase imports. Also, services can import h1bs (as they do) to reduce pay.

Structural inflation is the part most models still treat as temporary. Betting on a clean return to 2 percent has not paid for a while now.

Well this is going to be fun

3% inflation world with 5% yields is the regime everyone keeps forecasting away from. goods deflation is not coming back just because models want 2%

Long bonds dont care about inflation just supply and demand of long term debt.

They very much care about inflation.

Long term bonds care about supply and demand for credit more than anything else. They do care about inflation if short term is not rising to take care of it. Today long rates are high due to demand from AA rated borrowers who will pay anything to borrow. Meta SpaceX etc

In a 3% inflation world, the best asset a lot of households own is a 3% mortgage. Nobody sells that. They'll sit in the house until the paint peels.

3% inflation forever… and the banks still want 7% on a mortgage. Max interest should be 2.5%, all in!

I watch sticky services inflation closely because higher persistent wage costs make rate cuts much harder to justify.

For the futurists in us, AI won’t make debt vanish. It will make it irrelevant.