Robert Shiller: Fed risks ‘shame’ if it doesn’t control inflation – CNN | Jewelry Dukan

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Central banks face the unenviable task of trying to stem decades of inflation without triggering harsh recessions that could unleash misery around the world. But Robert Shiller, a Nobel Prize-winning economist at Yale University, believes they have no choice but to hold the line.

“Now if we see continued inflation, it’s going to be a disgrace to this country and further reduce confidence in institutions,” Shiller said in an exclusive interview with Before the Bell.

Shiller helped develop the leading measure of US home prices and popularized a key method of valuing stocks. However, his latest book looks at how the stories we tell ourselves as a society can shape our economic future.

That’s a big reason why inflation is seen as such a threat. If people think that prices will continue to rise rapidly, they will start demanding higher wages. That will force companies to raise prices even more to protect their margins, feeding a cycle that can be increasingly difficult to control.

Since the latest report that left annual consumer inflation in the United States stubbornly high at 8.3%, bets have mounted on Wall Street that the Federal Reserve could hike interest rates by a full percentage point for the first time in modern history . Shiller believes that given the scale of the problem the Fed is facing, a hike of this magnitude may be needed.

Below is an excerpt from our conversation. It has been edited slightly and condensed for clarity.

US house prices are rising more slowly but still strongly. Do you think it fair to say the market is cooling?

I think so. It’s hard to predict these things, but this was a remarkable rise in house prices since the bottom in 2012 – over 10 years. It can’t go on like this forever.

It was fueled by expectations and self-fulfilling prophecy. People think they are going up and so expect to take the higher amount. This has also continued during the Covid-19 epidemic.

Are we seeing the start of a healthy correction, or could it be more severe?

There could certainly be a price drop. I expect there will be at least a modest decline in real inflation-adjusted home prices. But it’s not something that needs to happen quickly.

Should the Federal Reserve be worried about the housing market?

I think the inflation rate is a matter of trust. We don’t index all of inflation because we believe we have monetary authority to keep it from getting out of hand. Now, if we see continued inflation, it will be a disgrace to this country and further reduce confidence in institutions. This is bad for the economy. It’s bad for all of us, a loss of confidence.

Are you concerned that we are moving into a prolonged period of higher inflation?

To get people’s attention and change their inflation expectations, you would have to raise interest rates to high levels to create a sudden correction. So I don’t think inflation will go back to 2% in a year’s time. It’s not a good idea to be that aggressive.

At the upcoming Federal Reserve meeting, the last time I got a feel for the consensus, it could be raised by a percentage point. That’s quite a lot by historical standards, but it’s not the super drastic changes that would immediately push inflation to 2%.

So you think the Fed may need to step up its game to change expectations at this point?

I think one percentage point is a good number because people don’t expect the Fed to go beyond that. And if they go beyond that, it would dampen spending more than we thought possible.

I would stay within the framework they set out to respond incrementally. One percent seems about right. I don’t have any scientific evidence to back this up, but it seems like the public will take this action as confirmation of their belief that the Fed is taking action on inflation, but it’s not dramatic enough to upset the balance in our economy will disturb.

The blockbuster listing of sports car maker Porsche is progressing with high ambitions, even as markets falter on recession fears and alarms of major interest rate hikes from central banks.

The Latest: Volkswagen (VLKAF) said Sunday it is targeting a valuation for its Porsche division of up to 75 billion euros ($75.1 billion). This makes the IPO the second largest in Germany.

Volkswagen shares rose slightly early Monday before falling back.

How to proceed: Trading on the Frankfurt Stock Exchange is scheduled to begin on September 29. Until then, Volkswagen bankers will be racing over how much demand they can muster. The preference shares on offer are between EUR 76.50 and EUR 82.50.

The IPO is likely to attract interest due to the strength of the Porsche brand. In the first six months of the year, the company reported sales of nearly 18 billion euros ($18 billion) and operating profit of 3.5 billion euros ($3.5 billion).

However, some potential investors might choose to remain on the sidelines as they reconsider their strategies during a turbulent time. Market conditions were hampered by sky-high energy prices in Europe and a sharp rise in borrowing costs as the Federal Reserve and European Central Bank seek to rein in inflation.

Europe’s Stoxx 600 index is down nearly 17% year-to-date, while Germany’s DAX is 20% lower. Volkswagen shares are down almost 19% in 2022.

More Americans are struggling with long-term credit card debt, according to a new survey, as emergency spending and the rising cost of living make it harder for them to pay their balances.

Breakdown: A survey of those with credit card debt released Sunday by Creditcards.com found that 60% of respondents who owe month-to-month have owed their creditors money for at least a year. This is an increase of 10 percentage points compared to the previous year.

“The percentage of people who have had credit card debt for at least a year has increased significantly,” said Ted Rossman, senior industry analyst at CreditCards.com.

About half of credit cardholders who have month-to-month debt said they had to borrow to deal with an unexpected event, like medical bills or car repairs. But 31% of millennials said everyday spending was the top reason for their credit card debt.

This cohort could come under increasing pressure as the cost of living remains high and interest rates continue to rise. The survey found that rising expenses would have a major impact on 41% of all credit card holders and more than half of those with outstanding debt.

Why It Matters: Banks are watching closely to see if the people and businesses they’ve lent money to are becoming increasingly unable to repay it. So far they are not too concerned. It also helps that US credit card balances are down 4% compared to the end of 2019. But it’s a vulnerability as economic growth slows and inflation lingers.

AutoZone (AZO) reports results before US markets open. The NAHB Housing Market Index for September is released at 10 a.m. ET.

Starting tomorrow: Stock trading in London will resume after the state funeral for Queen Elizabeth II.

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