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12.9.2022 by David Robinson

Core Inflation Falling? And Thoughts on Immigration Reform

Inflation continues to dominate the U.S. and global economic landscape. As we all know, the Fed is fighting inflation by aggressively raising short term interest rates. The Consumer Price Index (CPI) gets the headlines. But what is the Fed’s favorite inflation yardstick? The Fed zeroes in on the Personal Consumption Expenditures Index (PCE), as a broader and more accurate measure of consumer prices. The Fed liked the October PCE report, with the PCE rising 0.3% in October, over September. Backing out volatile energy and food prices, the “core” PCE rose 0.2% in October over September. CNN More good news may be coming as the CPI and PCE begin to reflect falling rental costs.

Only a fool would start planning the inflation victory parade based on this limited amount of positive pricing data. Nevertheless, we are beginning to see economic speculation on whether it is essential that the Fed reduce inflation to its official annualized target of 2%. The conundrum is that 2% is arbitrary, a compromise between complete price stability at 0% and a higher acceptable rate that could promote more growth and give the Fed greater monetary flexibility in tough times. New York Times Wall Street Journal Prominent economist, Olivier Blanchard, argued recently that the ideal inflation rate for the U.S. might be around 3% Financial Times The Fed will lose credibility if it openly acknowledges that a higher inflation rate is acceptable or even preferable. With some justification, critics will scream that the Fed is moving the goalposts after the game has started. Our prediction? The Fed will ultimately find a way to graciously accept a 3% target although the tortured “Fed speak” will be a challenge to decipher.

Immigration Reform Ahead? This news comes as a welcome surprise to me, but immigration reform is back on the table. Senators Thom Tillis, the North Carolina Republican, and Kyrsten Sinema, the Arizona Democrat, are negotiating a proposal that would establish a path to citizenship for the approximately 2 million “Dreamers” who are in the U.S. illegally. AGF Insight and Market Perspectives With a tight labor market, the U.S. needs additional workers. Broadly speaking, economies can only grow by increasing their population or by workers increasing their productivity (i.e., producing more goods and services). Simply put, the U.S. needs immigrants and needs to maximize the economic contribution of those already in the U.S. Any broad-based reform, as I see it, will have to acknowledge that our borders must be secure, and that future immigration must occur through a legal process that is humanitarian but fundamentally protective of our sovereign interests.

Additional Retirement System Changes Still Possible in 2022: We are getting down to the wire on this but be aware that more retirement system legislation is possible before year end. The legislation is referenced as Secure 2.0 in the media. CNBC One possible change that we are tracking as closely as possible is whether the age to start required minimum distributions from IRAs and 401(k) plans may be extended from age 72 to 75. Stay tuned on this one.

Medicare Advantage vs Medicare: The window for Medicare open enrollment closed this week. Even so, we see a need to promote a better understanding of the differences between Medicare Advantage plans and traditional Medicare coverage, paired with a Medicare Supplement. We are fine with either choice but want our client to be fully informed. Marketplace As you come up on this decision in the future, be aware that RSWA has working relationships with at least two specialists in this area, who can ably guide you through the intricacies and nuances of the decision as it impacts your individual needs and preferences.

Lifestyle Notes:

  • Dogs and Love: Scientists are beginning to understand much better the incredible bonds that form between pets and their owners. This article dives deep into what makes dogs so special to many. Washington Post
  • Multiple Short Walks or One Long One? Whether it is healthier to take more frequent short walks or fewer but longer walks may depend on your objective per this article Well + Good Big picture, what works best for your lifestyle matters most because it will be the most sustainable for you.
  • How to Suck Less at Golf: This coach makes two sensible suggestions. Have a game plan on each hole that reflects your skill level. Hit the club that is right for you-not what a pro would hit. Likewise, he says you need to play to the “real par” for you on the hole. A par 4 hole is realistically a par 6 for me, for example. This adjustment will reduce your frustration and lead to better shot selection. Golf Digest
  • Leveraging Micro Actions: “Micro actions compound into macro-outcomes.” It sounds like a truism, but greatness is a function of numerous micro actions. Thousands of little moments lead to big moments-the Legos of life. Better Humans
  • Air Fryers for Healthy Fast Food? This article makes a compelling case for an air fryer-fast and less oil. Washington Post In truth, I have no business recommending cooking appliances. With any luck Annie will not see this.
  • 10 Minute Workouts: Everyone has 10 minutes to spare if we are honest with ourselves. Research shows that short bursts of exercise can make a meaningful difference. Wall Street Journal

A Quote to Consider:The fundamental algorithm of life — repeat what works.” Charlie Munger

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