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I read Vice Chair Jefferson as more dumb than hawkish or dovish

Published on February 22, 2024

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By

Gerard MacDonell

Peter covered the relevant part HERE. So, let me follow up with an aside. 

The first substantial part of Jefferson’s talk today is presented below. 

Jefferson is confused by the recent strength of consumption because it seems inconsistent with “savings” being run down, which he seems to confuse with “wealth.”  Actual wealth has been soaring and easily rationalizes the current “low” level of the personal saving rate, assuming it is measured even roughly accurately, which you definitely shouldn’t assume.

If you start with the premise that households are somehow saving the wrong amount and reason about the outlook from there, then don’t be surprised by being surprised. 

Not that I go unsurprised! Even if you don’t start with dumb economics, it is easy to be wrong a lot.  So why handicap ourselves even further? It is an enduring mystery.  A conundrum wrapped up in an enigma.

The part about delinquencies seems unsilly to me, separately.  They seem worth keeping an eye on.  My understanding is that there might have been a “savings” effect on that affecting the low end, which kept apparent credit quality there artificially high for a while. If the turn there becomes an issue for lenders it will be an issue for us.  So, I won’t be dismissive of that.  But not excess savings and consumption cascades.

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