Inflation appears to be cooling, but will it stick?
I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”
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Today's read: 13 minutes.
Our favorite things.
Early on in Tangle's existence, I used to periodically release a newsletter where I'd recommend all my favorite things from the last few months. Those editions contained some articles and writing related to politics, but also things like my new favorite song, favorite podcast, favorite app, or even the best advice I had gotten recently. Examples of past editions (which are behind a paywall) are here, here, and here.
These recommendation newsletters were always a crowd pleaser, but the other day I realized I hadn't published one since 2021! Now, I've got four employees and a staff of part-time people with eyes all over the internet, so tomorrow I'm collecting all our favorites and we're bringing back the "favorites" newsletter for our Tangle members.
Quick hits.
- The Supreme Court unanimously rejected a legal challenge of the Food and Drug Administration's regulation of the abortion pill mifepristone. (The decision)
- The House voted 216-207 to hold Attorney General Merrick Garland in contempt for withholding audio of President Biden's interview with Special Counsel Robert Hurt. Zero Democrats voted in favor and one Republican voted against the measure. (The vote)
- Former President Trump will make his first visit to Capitol Hill since the January 6 riots today, returning to address House Republicans and meet with Republicans in the Senate. (The visit) Separately, President Biden arrived in Italy this morning for the G7 summit. (The summit)
- Hezbollah launched rockets from Lebanon into northern Israel in response to an Israeli airstrike that killed a senior commander. (The attacks)
- During their annual convention, Southern Baptists voted to oppose in-vitro fertilization and also voted down a formal ban on churches with female pastors. (The votes)
Today's topic.
The latest economic indicators. On Wednesday, the Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) report for May, which showed an increase of 3.3% from a year earlier, slightly slower than April’s 3.4% rate. On a month-to-month basis, prices remained the same for the first time since July 2022. Core inflation, which excludes volatile food and energy prices, rose 0.2%, its slowest pace since October 2023.
Reminder: The CPI tracks price fluctuations for 80,000 items in a fixed basket of goods and services, representing everything from gasoline to apples to the cost of a doctor's visit. You can read our coverage of past inflation reports here.
Before the report came out, economists predicted the CPI would increase 0.1% monthly and 3.4% annually. A 3.6% decrease in gas prices from April accounted for much of the inflation slowdown, while grocery prices remained steady. However, shelter inflation rose for the fourth-straight month, increasing 0.4% in May. The month-to-month prices of transportation services and motor vehicle insurance — two other volatile categories that have contributed to inflation — fell 0.5% and 0.1% respectively but remain high on an annual basis. Separately, the producer price index, a gauge of prices that producers get for their goods and services in the open market, declined 0.2% for the month, bucking expectations after gaining 0.5% in April.
The BLS published its report hours before Federal Reserve officials decided to leave interest rates unchanged at their June meeting, though the Fed indicated that they still expect to make at least one cut in 2024. Fed Chair Jerome Powell said he was encouraged by the latest economic numbers, but it was too soon to cut interest rates. “We’ve made pretty good progress on inflation,” he said. “But you don’t want to be too motivated by any single data point.”
Fed officials will meet four more times in 2024 — in July, September, November, and December — but Powell gave no indication when a cut might come. Still, 15 of 19 officials expect the Fed to make at least one rate cut this year.
Finally, the Department of Labor’s May employment report, released on Friday, tempered expectations for a rate cut this fall. The report showed the U.S. economy added 272,000 jobs in May, significantly more than expected, while average hourly earnings rose 0.4% (though the unemployment rate also rose, hitting 4% for the first time in 27 months). The Fed views rising employment and wages as a precursors to inflation.
Today, we’ll explore arguments from the right and left about the latest economic numbers. Then, my take.
What the right is saying.
- The right acknowledges the positive trend in the latest numbers but says the U.S. is still far off from where it needs to be on inflation.
- Some say the rise in shelter prices shows why Americans don’t feel the economy is improving.
- Others argue the numbers aren’t strong enough to change voters’ perception of Biden.
In National Review, Dominic Pino wrote “3.3 percent is not good enough.”
“A 3.3 percent inflation rate is better than a 9 percent inflation rate, but the Fed’s target is 2 percent. It measures that using the PCE price index, which is slightly lower than the CPI and gets released later in the month. But the Fed should not let a financial press or politicians begging for rate cuts sway its decision-making,” Pino said. “The difference between 2 percent and 3 percent might not seem like a big deal, but it is. First, inflation is cumulative, and that extra percentage point each year adds up over time for a much bigger increase in the price level.
“Second, and probably more importantly, Jerome Powell has staked the Fed’s credibility on a return to 2 percent inflation. Some have argued he should raise the inflation target to 3 percent, but he has declined to do so. To go back on that now would signal that he doesn’t have what it takes to stand up for independent monetary policy that seeks price stability,” Pino wrote. “The financial sector wants to go back to the near-zero interest rates of the 2010s because it was fun when money was basically free and the stock market did fantastic. The Fed’s duty is to price stability and full employment, not to the financial sector, or to whiny politicians who also want rate cuts.”
In The Washington Examiner, Carter Schroppe suggested “May’s positive inflation report doesn’t tell the whole story.”
“The Biden administration will use this data to project economic strength and argue that inflation is finally under control. The better than expected report deserves a closer look, however, and requires a perspective that yields analysis more nuanced than simply stating that ‘inflation is down,’” Schroppe said. “Inflation and cost of living are not the same thing. The former may have cooled last month, sure, but the latter did not. High rent prices have a far more significant impact on individuals and families than a slight drop in gas prices. Two-thirds of the annual increase in inflation is due to shelter prices. The disproportionate impact this metric has on the consumer price index has been contributing significantly to the difficulty of reining in inflation.”
“That disconnect between inflation and the cost of living is central to why Biden is struggling so much to convince the public that the economy is booming. He can cite job growth, a low unemployment rate, and this most recent inflation report as much as he wants, but those metrics aren’t nearly as important as he would like to believe,” Schroppe wrote. “A family with two children still won’t be able to outbid a private equity firm on a house no matter how many jobs are added to the economy next month… The math being done at kitchen tables all across the country is very bleak, and that’s what really matters.”
In CNN, Patrick T. Brown said “the economy is strong, but it might not be enough for Biden.”
“This month’s rosy economic data is nearly everything the president could ask for. But the questions remain: Will a strong economy be enough to drag President Joe Biden over the finish line? Or will voters’ concerns about his age and performance outweigh the question first asked by Ronald Reagan in 1980: ‘Are you better off now than you were four years ago?,’” Brown wrote. “Voters have a longer memory than Democrats might wish. No matter how the Biden administration might try to pitch it as the price paid for our gangbusters post-Covid recovery, high inflation leaves a bad aftertaste, like a generic-brand diet cola.”
“All told, prices are up 19% since Biden was sworn in, while average weekly wages have only increased 15% (though that latter number is complicated by the shifting composition of the post-Covid labor force). And the aftermath persists — high interest rates continue to make big-ticket items, like houses and cars, feel out of reach for many would-be buyers,” Brown said. “All of this, on top of the fact that Biden would be the oldest man ever elected president were he to win re-election… suggests the Biden campaign can’t solely point to the signs of a strong economy to do their work for them.”
What the left is saying.
- The left touts the inflation numbers as a sign the post-Covid economy has arrived.
- Some say the report was a best-case scenario in key areas.
- Others lament the Fed’s decision not to cut rates despite the positive news.
In New York Magazine, Kevin T. Dugan wrote “the economy is finally becoming … normal.”
First, the inflation report “showed that prices were rising at the slowest pace since last July — with grocery prices staying at a level lower than they were in February. Second, wages are still rising faster than inflation, which puts consumers on a better footing to afford their lifestyle,” Dugan said. “These two sets of data alone would be cause for great news. They show an equilibrium returning to the U.S. economy after years of bad vibes and trillions of dollars in stimulus extended our inflationary era past the three-year mark. And it didn’t even account for the fact that, across some of the biggest retailers in the country, prices are actually starting to fall.”
“Most Fed officials predicted the central bank will cut rates at least once by the end of the year, amounting to a quarter-point fall in benchmark interest rates. Practically, it would not be a giant change — the equivalent of $17 less per month for every $100,000 on a mortgage. But it signals that the economy is going in the right direction,” Dugan wrote. “There is good reason to think that only a single cut actually undersells the optimism at the central bank. According to the Fed’s survey of its officials, the most popular position was for two cuts this year.”
In Bloomberg, Jonathan Levin said “disinflation is happening in all the right places.”
“It was just one month in a notoriously volatile data set, of course, but it adds to evidence from April that the hot first quarter was an aberration in a longer disinflation process,” Levin wrote. “Under the hood, there were plenty of encouraging signals for Fed policymakers to chew on… the breadth of the ongoing inflation is getting much narrower. Across the CPI, the weighted share of components inflating by more than 4% annualized fell to 53%, down from 59% a month earlier. Within the core index, the only two broad categories that experienced month-on-month inflation that’s at least a standard deviation above their 2017-2019 ‘normal’ were medical care commodities and the famously problematic shelter gauge.”
“Amid the fog of lags and imputations, it was always going to be important to monitor vanilla consumer services categories for signs of enduring inflation, and the news there was mostly encouraging. The personal care services category (which includes haircuts) cooled following a hot April, as did laundry and dry cleaning,” Levin said. "Powell kept his cards close to his chest at the press conference Wednesday, and, frankly, there wasn’t much signal from policymakers’ Summary of Economic Projections either,” but “the news from CPI was about as good as you could have hoped for.”
In MSNBC, James Downie criticized “the Fed’s interest rate mistake.”
“Powell suggested that one or two rate cuts could come before the end of the year — but almost certainly not until fall. Wednesday’s decision to maintain current rates, though, was a mistake: The Fed should be cutting rates already. And every month it refuses to do so is a gift to Donald Trump,” Downie wrote. “The Fed says it’s maintaining current interest rates to fight inflation. It might seem that that’s good for Biden. But that isn’t the case… a look beneath those top-line numbers shows this cautious reading is a mistake.
“The May jobs numbers may have been above expectations, but other data is less encouraging. First-quarter GDP growth was only 1.3% on an annual basis. The unemployment rate hit 4% for the first time in more than two years, and other metrics also show a softening labor market,” Downie said. “The Fed’s delay is particularly frustrating because interest rates are a clumsy tool for fighting this bout of inflation. Higher rates can be useful when inflation is primarily a problem of too much consumer demand. But recent inflation has been driven far more by supply chain bottlenecks… the Fed’s mistaken interest rate policy is unnecessarily risking the economy, raising the cost of living and buttressing a key voter concern that may help bring Trump back.”
My take.
Reminder: "My take" is a section where I give myself space to share my own personal opinion. If you have feedback, criticism, or compliments, don't unsubscribe. Write in by replying to this email, or leave a comment.
- Inflation is an incredibly difficult political problem, and it’s plagued Biden’s administration.
- The recent indicators are complicated, and they aren’t anywhere near strong enough to warrant celebration by Biden (or me).
- However, the recent reports gave the best news on inflation since we started covering the issue.
Inflation remains one of the most difficult political issues I've ever seen a president have to handle.
Think about it: Biden is in a spot where he genuinely has very little control. We can debate whether his past policies made inflation worse (and I think there is a good case that both Biden and Trump bear some responsibility), but mitigating inflation is now almost entirely up to one of the most independent institutions in the federal government: the Federal Reserve. Biden can't really pull any levers to bring inflation down or throw his weight around with the Fed — aside from appointing a new chairman, which he isn’t going to do.
At the same time, inflation got bad enough for long enough that any good news short of a complete turnaround can't really be celebrated. If the president trumpets a CPI that shows we’re on the right track — which is objectively and genuinely good news for the country — he comes off as out of touch. Consumers are still feeling the pain of higher prices relative to where they were just a few years ago, and a cooling inflation report means that prices are still rising. Additionally, inflation is worst in areas where consumers feel it most acutely (like their housing costs or mortgage rates). And when you consider that a healthy jobs report showing unexpected job growth and relatively flat unemployment numbers is actually bad news for a president hoping for an interest rate cut, you see just how difficult of a political spot Biden is in.
When the May CPI came out yesterday, a friend texted me “Biden should be talking about this 24/7." But I disagree. Yes, 3% year-over-year inflation is a huge improvement over where we were last year, the U.S.’s economic recovery from the pandemic has outpaced most of the world, and 3% is a fairly average rate of inflation historically. But the Fed is targeting 2% for a reason — that’s long been their standard, and it’s a healthy normal baseline rate to achieve, disregarding periods of higher inflation that raise the average. Maintaining a debatably acceptable inflation benchmark just isn’t a good enough reason for Biden to ask for an undecided voter’s support.
I will say this, though: We have covered inflation over 20 times now in the Tangle newsletter, one of the most recurring topics ever. We’ve provided a lot of very negative updates, and a handful of good ones; but this latest report is probably the most positive update of them all.
One big reason for optimism is that inflation has been driven by a few select industries recently, rather than broadly dispersed across many different sectors as we saw early on, and that trend is continuing. Fed Chair Jerome Powell has in the past referred to the importance of so-called "supercore inflation," a measure of inflation indicators that excludes the cost of goods, housing, energy, and food. These costs account for about one quarter of the total Consumer Price Index, but they have been very predictive of future inflation.
This month, supercore inflation cooled down for the second straight month, with one single element — auto insurance — responsible for half of its total growth:
Meanwhile, gas prices are falling, grocery prices are staying steady, and — perhaps most importantly — wages are outpacing inflation. Then this morning, we got news that wholesale prices fell unexpectedly, sending stock futures up and offering another signal inflation is receding.
For President Biden, that's about as good as the news can get for a problem that can only recede gradually and has been intractable through his term. At the same time, we've seen repeatedly that positive economic trends take time to be reflected in voters’ perceptions of the economy. We've also seen, again and again, that economic indices tend to be volatile — every time a "trend" seems to emerge, something goes sideways. In January, for instance, we wrote a newsletter about the good news on the economy. In April, we were back to reporting very mixed signals.
I've learned my lesson enough not to celebrate too early, but in a country so desperate for some relief on prices, I'm happy to see some good news.
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Your questions, answered.
Q: How do you write nonfiction and what are some things you consistently like about from your favorite thinkers? If someone was, say, submitting to the Tangle Sunday edition or starting a Substack, where would you point them?
— Michael from Fishkill, NY
Tangle: Thanks for asking this light and conversational question, Michael. We have a series of detailed or controversial questions in the queue, so I’m really happy to get a chance to end our week of coverage by talking about something I love: writing.
But you’re asking how I write nonfiction and who my favorite thinkers are, which are two different things. So to start with writing nonfiction, I’d say a few things: Trust your process, kill your darlings, and read great writers.
The thing I’m most proud of with Tangle is our process. I don’t necessarily think I’m uniquely able to share and analyze all sides of an issue, I just think we’ve built a great process that helps me do that. I read opinions from all over before I write a single word on any topic, and I surround myself with smart people who aren’t afraid to question me. I’ve also gotten better at admitting when I’m wrong or deferring to others’ ideas. Behind every great writer is at least one great editor, and I've got a few. The hard part is knowing when to listen to them, knowing when to push back and fight for your writing, and knowing when to let something go.
That’s the second point: Kill your darlings. Simply put, a lot of the sentences I write that I'm the most attached to are the ones that end up doing the least work and probably need to go. I can't quite explain why that is, but it's a lesson I learned in my nonfiction writing classes in college, it has always stuck with me, and it remains true to this day. You may have written a line that you love or expressed an idea you thought was really clever, but if you read it back and discover it doesn’t quite fit, you can’t be afraid to leave it on the cutting room floor. When an editor calls out one of your darlings as not really working, that’s a strong signal you’ve missed the mark.
As for reading great writers, that's the fun part. Anytime I'm in a writing rut, I snag a book off my bookshelf from a writer I love and read a few passages. Or I'll go buy a new book I haven't read yet and devour it for some inspiration. I learn a lot just from the simple practice of writing and being edited every day, and I learned a lot from taking formal writing classes. But I learn the most from reading excellent writers and reading them closely. It doesn't matter whether they are fiction or nonfiction writers, and there are far too many who have shaped my writing to list them here, but some of my favorites right now are Brian Doyle (my favorite writer of all-time), Cormac McCarthy, Matt Levine, Maria Doria Russell and Tim Urban, just to name a few.
My favorite thinkers? Really anyone who consistently introduces me to new ideas. I almost prefer not to name names because I’m afraid I’ll look silly for missing any (and because plenty of my favorite writers are obvious partisans on both sides). But if you’re trying to start a Substack and looking for inspiration, I think the people and outlets doing some of the most interesting work in the space are Rep. Jeff Jackson (D-NC), Ethan Strauss, and The Free Press.
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Under the radar.
Russian warships arrived in Cuba this week, catching the attention of U.S. officials. Russia and Cuba are longtime allies, and Russian naval vessels have visited the Caribbean nation several times in the last few decades. This flotilla, however, is the largest to visit since Russia's invasion of Eastern Ukraine and comes amid U.S. assistance to support Ukraine. The four vessels arriving in Havana Bay — just 90 miles from Florida — included an Admiral Gorshkov-class frigate and the Kazan submarine, both of which are capable of carrying advanced weapons such as hypersonic missiles. U.S. officials said they monitored the ships' arrival with sea drones and the visit is consistent with "routine naval visits that we've seen under different administrations," posing no threat to the U.S. BBC News has the story.
Numbers.
- -$0.21. The decrease in the average price of a gallon of gasoline in the U.S. between May 6 and June 10, according to the Energy Information Administration.
- 89.1. The 10-year median U.S. consumer sentiment rating, according to the University of Michigan.
- 77.2. U.S. consumer sentiment in April 2024.
- 3.95%. The 10-year median for 30-year mortgage rates, according to Freddie Mac.
- 6.99%. The average 30-year mortgage rate in June 2024.
- 33%. The percentage of Americans who said the U.S. economy was improving in March 2024, according to Gallup.
- 26%. The percentage of Americans who said the U.S. economy was improving in May 2024.
- 42% and 32%. The percentage of voters under 55 who trust Donald Trump and Joe Biden, respectively, on the economy, according to a June 2024 poll from The Financial Times and the University of Michigan.
- 42% and 41%. The percentage of voters over 55 who trust Biden and Trump, respectively, on the economy.
The extras.
- One year ago today we wrote about the Supreme Court’s Alabama voting rights ruling.
- The most clicked link in yesterday’s newsletter was the link to our new podcast series, The Undecideds.
- Nothing to do with politics: The 2026 World Cup knockout round schedule is out.
- Yesterday’s survey: 1,036 readers answered our survey on Israel’s hostage rescue in Central Gaza with 51% saying they were primarily relieved. “This is sad on so many levels and happy on only a couple. That's my feeling on every stage of 'progress' in this war,” one respondent said.
Have a nice day.
Brandon Garrett was camping with a group of people in rural Oregon in early June when he went out for a drive on a remote mountainous road. Garrett took a turn poorly and crashed his car into a ravine, but a passenger in the car he was driving got out to get help: one of his four dogs. The dog ran four miles to Garrett’s campsite, alerting the group that something was wrong. Garrett’s brother then called the Baker County Sheriff, who discovered the truck overturned off a U.S. service road. Garrett and the other three dogs were all rescued from the crash site safely. The Baker County Sheriff’s Office has the story.
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