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Column: A panicky Federal Reserve is driving us into an unnecessary recession

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Column: A panicky Federal Reserve is driving us into an unnecessary recession

Federal Reserve Board Chair Jerome H. Powell snatched the cookie jar out of the inventory market’s arms on Dec. 14, when he adopted up an announcement of a dovish half-point rate of interest enhance with a warning that the Fed didn’t suppose it had wrung sufficient inflation out of the financial system and would maintain elevating charges “for a while.”

The inventory market, which had been driving on a sugar excessive for per week — with the Dow Jones industrial common gaining almost 900 factors, or almost 3% — promptly rolled over and performed lifeless.

Since Powell’s assertion, the Dow has misplaced greater than 1,400 factors, or about 4.1%.

We don’t want a recession; we don’t want sky-high rates of interest. We want extra staff and funding. This isn’t an educational debate; our future is on the road.

— Former Fed economist Claudia Sahm

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The inventory market’s response isn’t the one indication that the Federal Reserve is out of step with financial traits — certainly, that it has been attempting to muscle inflation to the bottom with out absolutely recognizing, or a minimum of acknowledging, that the current bout of inflation doesn’t resemble previous cases in its causes in any respect.

Nor does the Fed appear able to acknowledge that the inflation price has been plummeting for a lot of months.

The quantity that makes it into information headlines, not least as a result of it has been invariably cited by the Fed when it has introduced its common rate of interest hikes, is an annualized price based mostly on the month-to-month modifications within the trailing 12 months.

In November, that got here to 7.1% for all gadgets, and 6% for “core” inflation, which screens out the particularly unstable classes of vitality and meals.

The 12-month determine, nonetheless, fails to trace current traits — in impact, it has been overstating the inflation price since this summer time. From September by way of November, costs rose by 0.4%, 0.4%, and 0.1% over the earlier months, producing an annualized inflation price of three.7% over that interval. Annualizing November’s month-to-month enhance produces an annualized inflation price of just one.2%.

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Powell and his Fed colleagues aren’t able to consider the story instructed by this pattern. In his Dec. 14 assertion, Powell accepted that inflation statistics for October and November confirmed “a welcome discount within the month-to-month tempo of worth will increase.” However he added that “it would take considerably extra proof to present confidence that inflation is on a sustained downward path.”

That is vital as a result of any mismatch between Fed coverage and real-life economics imperils the welfare of tens of thousands and thousands of Individuals. As I noticed in June, Powell has been a agency believer in an immutable trade-off between inflation and unemployment during which lowering inflation requires elevating unemployment and lowering unemployment produces greater inflation.

For the typical working American, the implications of this relationship, which is named the Phillips Curve, are alarming, particularly given as we speak’s low unemployment price (3.7% in November). Obstinate adherence to the Phillips Curve means throwing individuals out of labor.

In impact, it depends on the presumption that the one strategy to quell inflation is thru a significant financial contraction, with results that will likely be something however pretty distributed.

“An financial downturn like that’s prone to have long-lasting antagonistic results, and essentially the most marginalized in society will bear the brunt,” says Nobel laureate Joseph E. Stiglitz of Columbia College and the Roosevelt Institute.

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The Federal Reserve’s private consumption index reveals inflation falling from an annualized 7.5% in June to 2.6% in October. So why is the Fed nonetheless aggressively elevating rates of interest?

(Federal Reserve Financial institution of St. Louis)

But Powell has introduced himself to be an unyielding believer within the Phillips Curve.

“We’re by no means going to say that there are too many individuals working,” he stated on Sept. 21, the day the Fed introduced the third of what could be 4 consecutive three-quarter-point rate of interest will increase this 12 months. “We now have bought to get inflation behind us. I want there have been a painless method to do this — there isn’t.

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In his Dec. 14 assertion, Powell once more insisted that employment and wages had been nonetheless pushing costs too excessive. “The labor market stays extraordinarily tight,” he stated, “with the unemployment price close to a 50-year low, job vacancies nonetheless very excessive, and wage development elevated.”

Earlier than taking an extra take a look at Federal Reserve coverage and its impact on extraordinary Individuals, let’s study once more what has pushed costs greater over the past 12 months.

The normal inflation narrative is that extreme financial demand is what drives costs greater — individuals and companies need to purchase extra items and providers than the financial system can present, so costs naturally rise. Demand could be pushed up by many elements, together with the federal government printing an excessive amount of cash or retaining rates of interest too low.

When that’s the case, then the Fed’s financial instruments — mainly its potential to push rates of interest greater — is the best treatment.

However that’s not what occurred within the final 12 months, when inflation was pushed largely by “occasions exterior the USA — Putin’s battle in Ukraine, China’s lockdown, and post-COVID demand worldwide exceeding worldwide provides of all types of supplies and elements,” noticed former Labor Secretary Robert Reich.

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Nothing within the Fed’s toolbox addresses elements such because the constraints on oil and fuel manufacturing ensuing from the Russian invasion of Ukraine or the slowdown in China manufacturing as a result of its stringent lockdowns. Federal Reserve financial coverage can’t do something to extend the manufacturing of meals, which might carry down these costs.

Nor does the Fed have any affect on one other, little marked driver of inflation: unrestrained company income. Partially as a result of they will blame the inflation narrative, companies have felt that they will elevate costs with impunity. “We’re able to taking no matter pricing we’d like,” PepsiCo Chief Monetary Officer Hugh F. Johnston instructed funding analysts throughout a convention name in October.

A lot of the predominant inflation drivers are fading away with none prompting by the Fed. “Disruptions as a result of COVID [are] easing,” pent-up client demand is ebbing, and households have spent down a lot if not a lot of the stimulus funds that stored them afloat in the course of the pandemic lockdowns that started in 2020, notes former Fed economist and self-confessed inflation dove Claudia Sahm.

Some Fed observers attribute the central financial institution’s hard-nosed inflation stance to its embarrassment at having missed the onset of inflation in 2021 and its misjudgment in dismissing the value surge late that 12 months as “transitory.”

Based on that principle, the financial institution is set to protect its status for sound financial administration by not permitting short-term indicators to sway it from its mission to take care of worth stability.

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That raises a priority that the Fed may err within the different path — by pushing charges too excessive for too lengthy, damaging the financial system.

It’s value noting that financial coverage operates with what could be a months-long lag, that means that the rate of interest hikes it already has put in place could also be sufficient, if not an excessive amount of.

That will warrant a pause within the rate-raising cycle subsequent 12 months. However Powell dedicated solely to shifting “to a slower tempo” of price will increase, which he stated “will permit us to really feel our method.”

To some extent, the Federal Reserve could also be combating the proverbial final battle in its battle in opposition to inflation. Financial observers have more and more questioned whether or not its 2% inflation goal is outdated — certainly, whether or not it was ever practical.

Some economists, equivalent to Olivier Blanchard of the Peterson Institute for Worldwide Economics, advocate elevating the goal to three% and even greater. That will replicate the fact that over the past 92 years, the U.S. client worth index has risen by an annual common of about 3.2%. (Acknowledgment to Ben Carlson of the A Wealth of Widespread Sense weblog.)

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It might be time to suppose anew in regards to the function of the Federal Reserve within the making of financial coverage. Former Treasury Secretary Lawrence Summers praised the Biden administration in an op-ed Monday for “doing an exemplary job of respecting the Fed’s independence.”

This hands-off method by the White Home wasn’t all the time the case. As UC Berkeley economist Brad DeLong reviews in “Slouching In the direction of Utopia,” his magisterial guide in regards to the final 150 years of financial policymaking, Richard Nixon made certain that his Fed chair, Arthur Burns, was made conscious that unemployment wanted to be low and falling because the 1972 election drew close to.

The Powell Fed is working as if the political ramifications of its rate of interest insurance policies are of no import. However that’s not so, in fact. The welfare of households throughout the financial spectrum is a quintessential political difficulty.

One wouldn’t need any White Home to deal with the Fed as an instrument of partisanship, however reminding the Fed that its actions have an effect on not solely the bondholding class however “essentially the most marginalized in society,” as Stiglitz says, shouldn’t be totally out of bounds.

It’s unawareness of these penalties that makes the Fed appear greater than dispassionate in making coverage, however callous. Bringing down inflation by slowing and even reversing wage beneficial properties, to not say throwing individuals out of labor, will spell doom to untold households.

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Essentially the most that Powell will say is {that a} recession might or is probably not essential to beat inflation but when it occurs nobody is aware of “whether or not it’s going to be a deep one or not.”

Has any financial policymaker ever been so complacent?

“We don’t want a recession; we don’t want sky-high rates of interest,” Sahm wrote in a current assault on Phillips Curve economics. “We want extra staff and funding. This isn’t an educational debate; our future is on the road.”

Making a low-inflation, high-employment financial system could also be past the Fed’s capabilities. It requires structural modifications that embody common healthcare and paid sick time, in order that the labor market isn’t stored tight by too many staff falling unwell.

The Biden administration and a Democratic Congress have taken nice steps to spend money on America’s future, by way of the Infrastructure Act, Inflation Discount Act, and the CHIPS and Science Act.

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However these largely contain investments in issues; what’s been lacking is extra funding in individuals, which is able to yield longer-lasting development. That process, in the intervening time, has been left to the Fed, which is shifting within the improper path.

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Dozens of shuttered 99 Cents Only stores could reopen under a familiar name: Dollar Tree

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Dozens of shuttered 99 Cents Only stores could reopen under a familiar name: Dollar Tree

Dozens of recently closed 99 Cents Only stores across the Southland could reopen with another bargain retailer’s logo outside: Dollar Tree.

The Chesapeake, Va.-based company, which operates hundreds of Dollar Tree and Family Dollar stores in California, reportedly made a bid on about 100 recently shuttered locations of 99 Cents Only, which announced last month that it was going out of business, according to a LinkedIn post from Bill Read, executive vice president of the real estate firm Retail Specialists.

The development, first reported by the Orange County Register, involves a handful of stores in Arizona, Nevada and Texas, but the vast majority are in Southern California, including in Lancaster, North Hollywood, Burbank, Long Beach and Riverside, according to Read’s post.

Dollar Tree did not immediately respond to requests for comment. A representative for 99 Cents Only could not be reached.

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The 99 Cents Only chain — a longtime icon of L.A.’s discount retail world — started in 1982 with a single store on La Tijera Boulevard and expanded rapidly.

Before the City of Commerce company abruptly announced its closure in April — citing several factors, including shifting consumer demands and inflation — the chain had 371 locations.

But shelves quickly emptied out during liquidation sales, and several of the locations today are covered in graffiti.

Dollar Tree has faced financial turmoil of its own.

In 2014, Dollar Tree Inc. announced a plan to buy its big rival Family Dollar Stores Inc. for more than $8 billion — an acquisition that, according to the company’s website, brought its total to 15,000 stores. But this year, Dollar Tree announced a plan to close nearly 1,000 locations, including about 600 Family Dollar stores, in the first half of 2024, as well as several other Dollar Tree stores in the years ahead.

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The Associated Press contributed to this report.

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OpenAI forms safety and security committee as concerns mount about AI

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OpenAI forms safety and security committee as concerns mount about AI

ChatGPT creator OpenAI on Tuesday said it formed a safety and security committee to evaluate the company’s processes and safeguards as concerns mount over the use of rapidly developing artificial intelligence technology.

The committee is expected to take 90 days to finish its evaluation. After that, it will present the company’s full board with recommendations on critical safety and security decisions for OpenAI projects and operations, the firm said in a blog post.

The announcement comes after two high-level leaders, co-founder Ilya Sutskever and fellow executive Jan Leike, resigned from the company. Their departures raised concerns about the company’s priorities, because both had been focused on the importance of ensuring a safe future for humanity amid the rise of AI.

Sutskever and Leike led OpenAI’s so-called superalignment team, which was meant to create systems to curb the tech’s longterm risks. The group was tasked with “scientific and technical breakthroughs to steer and control AI systems much smarter than us.” Upon his departure, Leike said OpenAI’s “safety culture and processes have taken a backseat to shiny products.”

OpenAI’s new safety and security committee is led by board chair Bret Taylor, directors Adam D’Angelo and Nicole Seligman and Chief Executive Sam Altman. Multiple OpenAI technical and policy leaders are on the committee as well. OpenAI said that it will “retain and consult with other safety, security and technical experts to support this work.”

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The committee’s formation arrives as the company begins work on training what it calls its “next frontier model” for artificial intelligence.

“While we are proud to build and release models that are industry-leading on both capabilities and safety, we welcome a robust debate at this important moment,” OpenAI said in its blog post.

Controversies about use of AI have dogged the San Francisco-based company, including in the entertainment business, which is worried about the technology’s implications for intellectual property and the potential displacement of jobs.

Actor Scarlett Johansson criticized the company last week over its handling of a ChatGPT voice feature that she and others said sounded eerily like her. Johansson, who voiced an AI program in the Oscar-winning Spike Jonze movie “Her,” said she was approached by Altman with a request to provide her voice, but she declined, only to later hear what sounded like her voice in an OpenAI demo.

OpenAI said that the voice featured in the demo was not Johansson’s, but another actor’s. After Johansson raised the alarm, OpenAI put a pause on its voice option, “Sky,” one of many human voices available on the app. An OpenAI spokesperson said the formation of the safety committee was not related to the issues involving Johansson.

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OpenAI is best known for ChatGPT and Sora, a text to video tool that has major potential ramifications for filmmakers and studios.

OpenAI and other tech companies have been holding discussions with Hollywood, as the entertainment industry grapples with the long-term effects of AI on employment and creativity.

Some film and TV directors have said AI allows them to think more boldly, testing ideas without having the constraints of limited visual effects and travel budgets. Others worry that increased efficiency through AI tools could whittle away jobs in areas like makeup, production and animation.

As it faced safety questions, OpenAI’s business, which is backed by Microsoft, also must deal with competition from other companies that are building their own artificial intelligence tools and funding.

San Francisco-based Anthropic has received billions of dollars from Amazon and Google. On Sunday, xAI, which is led by Elon Musk, announced it closed on a $6-billion funding round that goes toward research and development, building its infrastructure and bringing its first products to market.

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California is making restaurants tell the truth about prices. Will it give you sticker shock?

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California is making restaurants tell the truth about prices. Will it give you sticker shock?

California restaurants finally have their answer: They, too, must comply with a new state law that bans unadvertised fees, surcharges and other costs tacked onto the end of the bill.

Starting July 1, restaurants will join thousands of other California businesses, including event ticket sellers, short-term rental apps, hotels and food delivery services, that are required to include all mandatory fees and charges in the prices they display or advertise.

The state attorney general’s office gave conflicting statements in the weeks after Gov. Gavin Newsom signed the measure into law last year, telling some news outlets that restaurants could continue to keep their current prices while listing any surcharges on their menus, and others that the surcharges had to be included in the prices themselves.

On Wednesday Atty. Gen. Rob Bonta’s office released a set of guidelines to clarify that issue and answer other questions about how businesses must comply with the new law. Bonta sponsored the measure, Senate Bill 478, along with its co-authors, state Sens. Bill Dodd (D-Napa) and Nancy Skinner (D-Berkeley).

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For restaurants, that means it will no longer be enough to just list service charges and surcharges on a bill or a menu’s fine print. Instead, these charges must be included in the prices printed on the menu.

For example, a $20 mole enchilada at a restaurant that levies a 5% fee to cover employee health costs will have to be listed on the menu as a $21 mole enchilada. And a flier advertising a $10 lunch buffet at a restaurant that adds a mandatory 10% “service charge” will have to refer to the offer as an $11 lunch buffet.

In a statement, the Golden Gate Restaurant Assn. said Bonta’s guidelines “will create significant challenges for the restaurant industry moving forward.”

The association, which advocates for the restaurant industry, argues that by prohibiting the longtime practice of using service charges to increase staff pay or cover the cost of local ordinances — such as San Francisco’s requirement that businesses spend at least a minimum amount on healthcare services — the law will compound the problems faced by an already struggling industry.

“Diners will not pay less, instead they will see significant menu price increases, which we believe will further cause them to pull back on dining out,” the statement said. “Not only will restaurants struggle, but workers will lose hours and jobs.”

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With few exceptions, businesses of all sorts across California will not be able to advertise, display or offer a price for their goods or services that does not include all of the “mandatory fees or charges” other than government-imposed taxes or fees or reasonable shipping costs, according to the measure’s authors.

“Put simply, the price a Californian sees should be the price they pay,” Bonta’s office said in a news release.

The new law doesn’t dictate what companies charge for their goods or services. Businesses will still be able to set prices, but the posted price will need to match the full amount a customer will see on their final bill.

Though businesses can exclude taxes and shipping charges, handling fees must be included. In other words, actual postage or delivery charges can be excluded, while the cost of pulling an item off a shelf and taking it to a shipping company has to be included in its advertised price.

Separate fees for optional services or features do not need to be advertised. This could extend to a bevy of industries and services — for example, the amount an airline charges for a seat upgrade or checked bags.

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What about late fees or extra charges for customers who smoke in a hotel room? Because those charges can be avoided, they do not have to be advertised, according to the guidelines from Bonta’s office.

Businesses will not be allowed to skirt the law by advertising one price and then letting customers know that additional fees might be added later. A business can, however, list the full price of its product and provide customers a breakdown of all the fees that are included.

Bonta also offered some guidance for businesses that say they do not know up front what the final cost will be once their work is done. Such businesses “should wait to display a price until they know how much they will charge,” the guidelines say.

This could affect how live music fans interact with ticket sellers for concerts and other live events. The nonprofit watchdog Consumer Reports noted that hidden fees can increase the price of live-event tickets by 30% to 40%.

Live Nation Entertainment, parent company of ticketing giant Ticketmaster, said in a statement that it supported SB 478 and has already offered all-in pricing at some venues and festivals across the country. “Unfortunately, we routinely see resellers defy state laws requiring all-in pricing which confuses and harms fans, so we strongly encourage regulatory scrutiny to ensure compliance across the industry,” the company said.

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The Virginia-based Travel Technology Assn., a global network of online travel agents, said it views transparency as a top priority but opposed SB 478 and would rather see a uniform national standard for regulations on lodging prices.

“We take this position to create uniformity and certainty for lodging operators, travel technology companies, and most of all, travelers, who will have a better understanding of what is included in advertised prices for trips both in and out of their home state,” President and Chief Executive Laura Chadwick said in a statement.

The online travel company Expedia opposed the bill for similar reasons.

In response to the argument, Bonta said that California does not need to wait for federal action to ensure transparency for consumers. The practice of hiding mandatory charges, he said in a statement, “is deceptive and unfair to consumers wherever it occurs — not just in certain industries.”

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