Expect and you shall recieve
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What is the main topic discussed in this episode?
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On the program today, sticky inflation. We'll do some video gaming and we'll talk about living on a cruise ship from American public media. This is Marketplace.
In Los Angeles, I'm Kai Risdahl. It is Wednesday today. This one is the 25th of February. Good as always to have you along, everybody. We're going to begin today with a one-two punch of sorts coming out of our interview with Rafael Bostic, the soon-to-be former president of the Federal Reserve Bank of Atlanta. In the parts of that interview that we played yesterday – and we're going to play some more in a minute, by the way – but we talked a bit, he and I did, about the central bank's credibility, how and why people might start doubting the Fed's ability to do its job. In this instance, specifically, being able to get inflation back to where the central bank wants it to be – Two percent, as you know, after not having been able to do it for years now, as you also know.
He worries about that, Bostick said. So Marketplace's Brie Benishore gets us going with this. Have we been away from ideal inflation for so very long now? That we're stuck here? You know, in Star Wars, the Empire Strikes Back, Luke is trying to raise a spaceship out of a swamp. I can't.
How does consumer perception influence inflation expectations?
It's too big. And then Yoda uses the Force and actually does it. I don't believe it. That is why you fail. This is a common trope in movies. The idea that believing in something or not believing in something makes that something happen or not happen. Inflation is like that. You can have a self-fulfilling prophecy. Yuri Gorodnichenko is a professor of economics at UC Berkeley. If you want to buy a car and you think inflation is going to be high in the future, then you should be willing to buy this car now rather than later. And if everybody does that, then the price of that car goes up.
I expect prices to be high and end up with higher prices.
Right now, consumers expect high inflation. According to the Michigan Survey of Consumers, they think on average, inflation will be 6.5% in a year and 7.2% in 5 to 10 years.
This is really, really high. It is relatively easy to create this self-fulfilling prophecy.
The only thing holding consumers back from getting out there and buying stuff and kicking off a vicious circle is uncertainty about the economy, Grodnichenko says. But there is a wrinkle in all of this, which is that we consumers, turns out, are usually very bad at predicting inflation.
Consumer expectations haven't been anchored at the 2 percent inflation target for like the last four and a half decades.
Michael Weber is a professor of finance at Purdue University. He says the spark for a self-fulfilling inflation prophecy isn't the number inside consumers' brains. It's whether that number is changing inside their brains. And right now it is. Inflation expectations keep coming down. So we might not know where we are, but we have a better sense of where we're headed. And if you look at it that way, we should be headed for lower inflation. But a vicious inflation circle that can throw all of that in the air is only ever a few painful grocery bills away. In New York, I'm Sabri Beneshour for Marketplace. Do or do not. There is no try.
What insights does Raphael Bostic provide about the Fed's credibility?
Wall Street seems not to be worried about inflation or the State of the Union or anything else except AI. Honestly, we will have the details when we do the numbers.
All right, here we go. One more chunk of my interview yesterday with Rafael Bostic, who until Saturday is the president and CEO of the Federal Reserve Bank of Atlanta. Talk for a second, actually, about the less heralded part of this job. You get all the headlines for monetary policy, but you're a CEO, too. This is radio, so nobody can see it. You're not laughing, not crying, but somewhere in between. Tell me about, you know, this is a big institution.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–1:43
2
How does consumer perception influence inflation expectations?
1:43–3:45
3
What insights does Raphael Bostic provide about the Fed's credibility?
3:45–9:34
4
What factors contribute to the self-fulfilling prophecy of inflation?
9:34–17:54
5
How is Anthropic changing its AI safety protocols?
17:54–25:34