The apparent disconnect between the state of the US economy and voters’ perceptions of it has puzzled economists for months. Unemployment is low, inflation has come way down and real wages are no longer lagging behind. Yet consumer sentiment is still lower than you’d expect. A new paper offers a concise and persuasive explanation: “Consumers, unlike modern economists, consider the cost of money part of their cost of living.”

The authors are former Treasury Secretary Larry Summers (a paid contributor to Bloomberg TV), Karl Schulz and Judd Cramer of Harvard, and Marijn Bolhuis of the IMF. Summers’ contribution on this topic might raise some eyebrows. His recent record on inflation punditry has been mixed. He was right early on about the pressure of excess demand and the need to curb it; his characteristically confident judgment that unemployment would need to rise to get prices back under control has proved wrong (so far). The new paper isn’t punditry but a scholarly effort, and it seems to solve a mystery. Like most good answers, however, it raises further questions.

QOSHE - Does Interest Rate Pain Explain the Consumer Sentiment Gap? - Clive Crook
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Does Interest Rate Pain Explain the Consumer Sentiment Gap?

6 1
04.03.2024

The apparent disconnect between the state of the US economy and voters’ perceptions of it has puzzled economists for months. Unemployment is low, inflation has come way down and real wages are no longer lagging behind. Yet consumer sentiment is still lower than you’d........

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