Prometheus: In Conversation With Andy Constan

Right.

And I think that you have to take a step back and say, what type of economy are we really in to really frame that? And I think that We've been saying this, many of us have been saying this for years now.

This economy is not an economy that is particularly sensitive to the Federal Reserve's normal policy tool of interest rates, of short-term interest rates.

Unlike most of the debt-related slowdowns after a tightening...

this particular economy is not built on a lot of private sector leverage that's very sensitive to short-term interest rates.

The whole...

Ever since the 2008 financial crisis where private sector debt became public sector debt, and certainly in COVID when that went, you know, over the top, private sector has actually... a pretty good balance sheet, one that is not particularly exposed.

Some may even say it's positively exposed.

I'm not one of them, but some may say it's positively exposed to rise of interest rates instead of normally in most debt cycles exposed to rising interest rates causing slowdowns and demand destruction.

So the big picture on inflation has always been multiple different influences.

There's demand that's created by monetary policy.

There's demand that's created by, and this is a pretty rare outcome, by people deciding to be less cheap or spendthrift and spend more.

That just doesn't typically happen very often.

And then there's supply inflationary pressures.

We had many decades of globalization, which create a disinflationary pressure on the supply side.

We've had many supply shocks recently.

And so the central bank really can't do much about supply shocks.

They, I think, regret now sort of pushing it aside as something that they think is transitory.

And we've seen multiple supply shocks again and again.

So supply shocks are what they are.

But the central bank can deal with demand-driven shocks.

demand-driven inflationary pressures.

And in a world in which wealth has accumulated in a massive way, in which wages, sorry, incomes were fully replaced during the financial, sorry, during COVID, and then tight job markets created significant inflationary pressures.

And The economy just isn't responding and demand isn't coming down in the normal way that it has happened in the past.

And so we've had this hire for longer environment.