Prices and productivity

Daily update

Federal Reserve Chair Warsh testified to Congress—at times sounding like a Bundesbank member, with a vehement denunciation of inflation. Warsh was keen to say the Fed was solely responsible for inflation—that is challenged by Fed research ascribing roughly 1ppt of last year’s inflation to US tariffs. Warsh also displayed a troubling fascination with the productivity pixie of artificial intelligence—technology is not a reliable driver of macroeconomic productivity, and believing that might result in policy mistakes.
Economists and bond traders have been battling over Fed expectations for some time (economists, rightly, expect a cut after a pause. Traders, wrongly, expect a hike). Yesterday’s June US consumer price data supported economists—not because the headlines were lower (that was oil) but because there is still no evidence of second round inflation effects from the Gulf war.
China’s second quarter GDP data was weaker than expected, below the official forecast range. There have been media reports that regional governments have been pressured to be more precise in their growth data, which means some of the slowdown may simply reflect more realistic measurement after previous higher numbers.
Today’s calendar is an imitation of yesterday’s. Warsh testifies again, and the Fed’s Williams speaks. US producer price inflation data will be produced.