Inflation Relief Can't Address the Missing Market Divide

Despite what investors and others have hoped for, it's possible the Fed could continue with a 75 basis point increase after September. Hence some are asking, isn't the worst inflation behind us? After all, consumers seem to be fairly confident. And what of potential "fallout" from additional employment losses the Fed would impose?

Admittedly, personal perspective affects the framing of these circumstance. Even though low income groups can't readily contribute to monetary debates, many (such as myself) are even more affected by market gaps now, than was the case a year and a half earlier. Doubtless, others like me would argue for continued tightening on the part of the Fed, if they could. 

The Fed's job has become more difficult than before, since nominal income expectations started getting out of hand last fall. There's even some partiality towards higher than normal nominal income levels, but chances are these advocates don't have to worry about being priced of home ownership. Yet home ownership possibilities continue to slip away for low income groups. Unfortunately, thus far, few communities are reaching out with more forgiving accommodations in land use for manufactured housing and modular homes.

Even so, there's more at stake than missing housing markets. The higher transportation costs of missing auto production, doubtless contributes to rising income demands from low income groups. Both these in turn lead to employers paying more for the staff they are still able to hire. If these issue weren't enough, protectionism remains a structural problem for use of applied knowledge in lower income groups.

Missing markets particularly lead to losses in economic freedom for millions of individuals. It's this lack of participation in what are basic forms of production and consumption, which makes it difficult for low income groups to (productively) make their voices heard. Is it any wonder when supply side reform proves intimidating, how attempts for economic inclusion and participation get rerouted into cultural battles instead? Unfortunately, some free market proponents are migrating to these cultural battles, whenever supply side innovation for basic markets seems too daunting to pursue.

Missing markets leave unaddressed supply side issues which force the Fed to walk a fine line for appropriate monetary representation. Clearly, citizens need the inflation relief which central bankers strive to provide. Nevertheless, even the best that can be done seems hardly enough, for the Fed catches blame and undue expectations for problems that aren't their responsibility. I find it frustrating when market observers take this route as an excuse to shirk their own responsibilities. In particular, even the most appropriate inflation measures and relief can't address the missing market divide for low income groups. Only supply side production reform for domestic markets in housing and services can accomplish this! Alas, Fed responsibility for price stability does not equate to stability in basic market access. For this reason, there is only so much the Fed can do about political stability as well.

What does the Fed need to accomplish for nominal income (including hours worked) and output to maintain stable levels over time? Adhering to a stable nominal level in the present, will gradually mean less insistence and reliance on price making, beyond what originating wealth sources can fully support. In other words, societies need to practice applied knowledge in ways that no longer distort general equilibrium or lead to further income imbalances. A more rational approach is needed for knowledge based services, which provides more economic participation, not to mention economic freedoms. Granted, the Fed can't make full monetary representation possible for all comers in our dependent secondary markets. But there are ways to overcome this problem and it's time to get started.