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FutureStarrFed's Jefferson: No Illusion Inflation Fight Will Be Quick
Governor Philip Jefferson made his first public remarks as chairman of the Federal Reserve Board, noting that inflation remains stubbornly high and may take time to reverse.
Jefferson stressed the necessity of low inflation as a precondition for long-term economic growth that benefits all Americans. Furthermore, it serves as an important means of closing economic gaps between different demographic groups, according to Jefferson in prepared remarks.
Inflation is an economic force that causes dollars to decrease in value, making goods more costly and reducing incomes. It's rarely a pleasant experience for consumers, savers or investors.
Inflation is defined as an increase in prices across a broad range of goods and services over time. The rate will differ depending on how quickly the economy grows and which items are included in the index used to measure its trend.
In the United States, the Consumer Price Index is the most common index. It includes prices on a variety of goods and services such as food, utilities and gasoline, along with housing and healthcare options.
Many economists prefer to exclude certain categories from inflation statistics, creating what's known as a core inflation rate. This helps eliminate some of the noise caused by fluctuations in headline numbers - especially for energy and food items which tend to fluctuate more from month-to-month than other goods and services.
However, core inflation remains high and shows no signs of abating. This is because there are various factors that can drive up the cost of goods and services, such as low inventories of key durables like vehicles or construction materials.
These items may also be affected by supply chain problems, such as rising energy prices and labor shortages that could cause product shortages or an uptick in demand for certain items. Other elements that influence inflation include monetary policy and foreign exchange rates.
Therefore, it's difficult to predict when inflation will start decreasing. Some analysts have even suggested that the Federal Reserve needs to raise interest rates significantly before inflation begins to decrease.
Even if the Fed manages to reduce inflation, it is uncertain that this will lead to much improvement in household budgets. According to Greg McBride, chief financial analyst at Bankrate, inflation is still impacting Americans' most basic necessities: food, energy and housing.
Inflation eased more than expected in October, providing hope that the fastest price increases in decades are slowing and giving Federal Reserve officials room to ease up on their aggressive interest rate increases. The consumer price index, which measures prices for goods and services, rose 7.7% annually in October - its smallest annual gain since September and down from 8.2% in October 2021.
Core inflation, which excludes volatile food and energy costs, fell to 6.3% in October from its four-decade high of 6.7%. This measure of inflation is key as it's the Federal Reserve's preferred gauge.
Russia's war in Ukraine is a major factor containing core goods inflation. This conflict has cut global supplies of crude oil and natural gas, driving up their prices. Furthermore, higher costs for oil and gas have restrained production and distribution across many other goods as well.
Economists believe this has caused a slowdown in demand for goods, which should help ease pressure on core goods prices. However, some economists warn that an economic slowdown could still put upward pressure on some items like gasoline and food prices - potentially reigniting inflationary trends.
Blerina Uruci, chief U.S. economist at T. Rowe Price, reports that core goods prices have begun to moderate from their highs reached in February and December 2022. While prices remain elevated, they have begun to retreat from the highs reached at these dates last year, her calculations show.
Though this is a significant drop, inflation remains much higher than the Fed prefers. That's because core inflation measures what's really happening in the economy more accurately than regular CPI inflation, which tracks changes to all goods and services prices.
The Federal Reserve's current target is to maintain inflation at 2 percent, which is a desirable rate because it gives consumers enough purchasing power to continue spending and investing in assets such as investment portfolios or homes. Conversely, inflation can become dangerously high when people begin tightening their budgets or going into debt to cover goods and services.
Jefferson noted that the Fed now possesses more credibility than it did during inflationary periods of the 1960s and 1970s. Furthermore, their target is tied to another mandate: maximum employment. Therefore, stable prices are essential for ensuring the economy grows at a healthy rate and creating jobs, according to Jefferson.
While core goods prices remain elevated, the Federal Reserve is anticipating a slowdown in housing services inflation. Shelter costs, which account for the bulk of CPI, could start declining by next year as new apartment leases expire.
Recent analysis by the Dallas Fed suggests that rent and owners' equivalent rent (OER) will add 35 basis points to headline PCE inflation (and 40 basis points to core PCE inflation) in the coming months before slowing in mid-2023. Unfortunately, pass-through of rising house prices to rents and OER takes time since leases usually require time for adjustment.
In the case of a housing price decline, this lag is especially evident as it takes time for the market to adjust and new leases to expire. That explains why housing services inflation is expected to remain high for some time yet.
However, due to rising mortgage rates, the housing market has already started to cool off. Therefore, Powell anticipates that any slowing in home prices will also impact CPI. "We anticipate that the recent slowdown in housing will gradually trickle through to CPI over the course of this year and that should help ease inflationary pressures," she notes.
However, it's essential to monitor the economy. A strong economy that's expanding quickly can actually benefit housing markets by encouraging people to purchase more homes and keep prices down. On the other hand, a weak economy makes it harder for individuals to afford higher inflation-related costs.
Due to a potential economic slowdown, some buyers who had planned on buying homes may decide against it. They could instead wait for economic growth to slow down or opt for a cheaper property.
Though the fight against inflation will be tough, it's worth remembering that the Fed is trying to prevent an overheated economy as they raise interest rates. Without evidence that the economy is on a positive trajectory, the Fed won't have credibility during an inflationary period.
The Fed is a federal institution that monitors economic activity and regulates financial institutions. Although independent, it collaborates with other federal agencies such as Treasury and Labor to promote a healthy economy.
The central bank sets interest rates and prioritizes maintaining a stable financial system. It also strives to reduce unemployment and boost economic growth.
Recently, the Fed has taken aggressive measures to combat high inflation. It also increased asset purchases - known as quantitative easing - in order to purchase government bonds and mortgage-backed securities.
However, it has also made some mistakes in the past. It has not always communicated its long-run inflation objective or used inflation expectations as a barometer for its calculations.
Over time, its credibility has grown due to its consistency in policy decisions and increasing transparency.
This has enhanced the public's capacity to comprehend what drives the Fed's policy decisions and anticipate its next moves. The more transparency a central bank provides, the better their communication will be and people can trust that it will act upon inflation expectations.
However, central banks still face some challenges. One is whether to adopt an explicit inflation target like the Bank of England and Bank of Canada, which would simplify policy while increasing transparency and improving credibility.
Another challenge lies in finding a balance between three objectives that central banks must pursue: price stability, employment and inflation. If they place too much focus on inflation, they could risk creating stagflation (high inflation) and financial instability.
Another challenge facing economists is that they may need to factor in other macroeconomic variables beyond their control, such as oil prices or political unrest.
Successful monetary policy requires moving slowly enough to restrain inflation without disrupting the economy too much. This takes time, and requires a careful assessment of the economic situation - something which may prove challenging at first.
With good communication and careful action from the Fed, it should be able to avoid many of the missteps made during inflationary periods of the 1960s and 1970s.
The WGA asks members to vote on a "pattern of demands" that sets the framework for bargaining with studios. These include wage increases and so-called mini rooms; streamer residuals; health insurance and pension contributions.
The guild also wants to increase its focus on diversity and equal opportunity issues. It would like more transparency into how much screenwriters are paid, as well as how often they meet with agents.
As the entertainment industry changes and develops, the WGA continues to negotiate new residual payments agreements with studios. These arrangements have been in place for some time now and guarantee that those responsible for creating TV shows and movies receive compensation for their efforts.
One of the key issues the WGA is focusing on in its negotiations with studios and streaming services this year is streaming residuals. These payments are made to writers when their productions are reused in another medium such as theatrical runs, broadcast TV, premium cable TV channels or subscription streaming services.
Writing can be a lucrative profession, yet the residuals on Netflix and other platforms are far from what they should be. Most major streaming services currently base their residual formulas off license fees and transactional sales rather than viewership numbers - which violates the Guild's rules.
Since 2007, The Writers Guild has been fighting for better residuals. It recently gained jurisdiction over writing on the internet, leading to significant gains for writers.
For instance, the Guild has recently won a $42 million arbitration award against Netflix for unpaid residuals from Sandra Bullock's Bird Box film which had its theatrical run before being repurposed for Netflix consumption.
In addition to this victory, the Guild also reached an agreement with Netflix that established a residual structure for films and TV shows licensed and produced by the platform. This means writers will earn 1.2% of gross revenue generated from original releases of movies or shows as well as any additional licensing fees from third parties who license those same movies or shows to streaming services.
The Writers Guild of America is asking its members to vote on key demands before negotiations with studios begin next week. The union's "Pattern of Demands" consists of three primary categories: Compensation & Residuals, Pension Schemes & Health Fund, as well as Professional Standards and Protection in the Employment of Writers.
WGA East President Mike O'Brien sent an email to the guild's more than 10,000 members outlining a set of demands that will serve as the framework for negotiations with the Association of Motion Picture and Television Producers (AMPTP), scheduled to commence on March 20. These demands included:
According to sources familiar with the negotiations, higher minimum rates, a ban on mini-rooms (which allow studios to pay writers less), increased residual payments for streaming shows, and greater contributions to the guild's pension plan are expected. Other demands include restricting "abuse" of mini-rooms and increasing television episode orders.
Another pressing concern is the Guild's depleted health insurance fund. It provides medical, hospital, dental, prescription, vision and wellness benefits to most participants and their eligible dependents - but is in grave financial straits.
This is one of the primary reasons why the guild encourages its members to vote on their contracts, giving them a voice in what benefits writers are eligible for. But, like any labor organization, the guild must also collect annual dues in order to stay financially solvent.
Writers pay an annual membership fee of about $1,200 which goes toward covering the costs of the Guild's health care, pensions and other services. Furthermore, members-only discounts on dining, lodging and products are available exclusively through this organization.
The WGA is asking its members to cast a ballot on key demands in bargaining with studios, such as pension and health benefits. Guild leaders are pressing them to give their representatives the authority to strike if management fails to negotiate an agreement they believe is fair. Voting can take place online or at special membership meetings in April.
The union wants to increase contributions to their pension plan and demand higher minimum pay for all writers. Furthermore, they desire standardized compensation regardless of where content is released.
It is calling on the studios to give writers more autonomy and exclusivity in their work, particularly when it comes to writing for television. This issue has become a source of concern for writers who feel constrained in terms of production schedules.
There is also the issue of stream residuals. The WGA wants to increase the amount shows receive for streaming residuals and add new metrics that matter to viewers and subscribers. Furthermore, they are encouraging studios to provide more protections for writers who are unable to work due to health issues.
Streaming residuals have become a major component of the WGA's compensation package, and they have seen dramatic increases over the past several years. Furthermore, it has received generous P&H increases the past two cycles and its pension plan remains strong.
With healthcare costs rising across America, some question if writers' guild will be able to stay ahead of rising expenses. Therefore, they have asked their members for feedback on a pattern of demands they hope will guide future negotiations.
In an effort to spur the studios into negotiations for a new contract, the WGA is asking members to cast their vote on key demands that will shape its negotiations with AMPTP. These include raising minimum rates, increasing residual payments for streaming shows and banning "mini-rooms," which could cut into writing budgets.
In addition, the guild is asking its members to vote on a referendum that would create an "Additional Literary Material" credit for feature film writers who do not receive screen credits due to submitting "literary material" to scripts. This change aims to better recognize all writers involved in a film project--those without credits and those working under Guild contract who have contributed material.
Another advantage of being a member of the Writers Guild is that you can access their arbitration process in case of dispute over writing credits on films and TV shows. If you do not receive what you believe to be fair compensation, three members from the WGA will come together to decide your case.
Aside from credit-related advantages, membership in the Writers Guild also grants you access to an expansive network of professional colleagues and resources that can assist you if a client fails to fulfill its contract. This is especially useful if working on an important project with multiple writers who are not under one Guild jurisdiction.
The guild is a powerful union in Hollywood, and you should not hesitate to get involved in its arbitration processes if you're dissatisfied with your credit on a film. Having an effective voice in these proceedings can make all the difference in how successful your claim turns out.
The Writers Guild of America will ask its members to vote on key demands in negotiations with studios before the current film and TV contract expires next May, sources told THR. Doing this will demonstrate to management that their members support striking for a fair contract if necessary, according to sources.
Since November, the WGA has been in negotiations with studios. According to THR, leaders have held several meetings with their members to collect feedback. Major topics under discussion include setting a minimum staff size for television series and increasing residuals for film and TV writers.
Additionally, the guild is pushing to extend span protection - which limits how long writers can spend crafting an episode - and regulate material created using artificial intelligence or similar technologies.
For independent films, the Guild is advocating a policy to allow agencies to provide financing and sales services with full disclosure of those costs, provided packaging fees remain prohibited.
Another key issue under consideration is how much writers should be paid for work distributed through streaming platforms. The WGA initially opposed this during the 2007 writers strike, but it's expected to come up again during 2023 contract talks.
The WGA has long sought a larger share of revenue from DVD sales and distribution rights due to the growth in internet-based streaming. Unfortunately, in 2007, studios and union were unable to come to an agreement, leading the union to vote to strike for 100 days.