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The not-so-easy thing about taming inflation

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Jerome Powell speaks at an economic policy luncheon.

Federal Reserve Board Chair Jerome Powell speaks during a luncheon at the 2022 NABE Economic Policy Conference. Samuel Corum/Getty Images

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A week after the Federal Reserve raised interest rates, some of us still have questions. Like, why did the stock market respond so positively? And how is making money more expensive really going to slow inflation? Plus, non-fungible tokens and disinformation, and who really owns the data collected by smart vehicles?

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Here’s everything we talked about on the show today:

Make Me Smart March 23, 2022 transcript

Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.

Kai Ryssdal: My clock says 3:30. There we go. There we go. Hello, everyone. I am Kimberly Adams, and welcome back to Make Me Smart where we make today make sense. I’m Kai Ryssdal, thank you for joining us on this Whaddya Wanna Know Wednesday. Your questions our answers from the past week or longer ago, frankly, if we dig them out of the mailbag. If you’ve got one that we you think we ought to answer, by the way, a question that is, leave us a voicemail. 508-827-6278 or you can send us an email make me smart@marketplace.org We will answer any question that comes no matter how it gets to us.

Kimberly Adams: Speak for yourself. Let’s get going to the first question.

Kai Ryssdal: Yes.

Claudia: Hi, this is Claudia in Nicholas, California. So inflation is increasing, reducing consumers ability to purchase goods and certainly get gasoline heating oil. Or at least a paycheck doesn’t go as far. And then the Fed is going to increase interest rates, which will make money more expensive to borrow as a way to dampen increasing inflation. I don’t get it. Can you make me smart?

Kimberly Adams: Totally fair. Totally fair. Okay.

Kai Ryssdal: Totally, totally fair question. So here’s the deal. Inflation is very broadly speaking too much money chasing too few goods, which is what we have in this economy now, right? There’s a whole lot of money because people saved during the pandemic, there’s a lot of money because of government stimulus plans, there’s a whole lot of money because interest rates have been at zero or were at zero until the other day for a very long time. And there are too few goods because of the supply chain backlogs that are well documented because of the pandemic. And the way it messed with this economy. So what the Federal Reserve typically does during a recession is increases the price of money. I really liked the way Claudia said that right? Raising interest rates is making money more expensive. So it becomes more expensive to borrow. Thus dampening demand, right? If companies and people can’t borrow as much money to spend what they want, there is less demand for those goods. And thus, it sort of reaches some equilibrium. The challenge, of course, is whether or not the Federal Reserve can do that without a hard landing, without driving the economy into a recession. And that’s the big thing that everybody’s watching now is whether they can do it with a soft landing, right, raising interest rates to dampen demand just enough so that we do not go into recession, but inflation eases, however, comma. This is not a normal recession. Okay. Jay Powell cannot raise interest rates tomorrow, and all of a sudden make the supply chain problems go away. He can’t make more semiconductors happen. He can’t make more cars show up. He can’t make the backlog in the ports of Los Angeles and Long Beach go away. He can’t do that. So he’s a little bit stuck. That said, the challenge is that the Fed really only has extremely blunt tools with which to manage this economy. So Powell and the rest of them are hoping that by decreasing demand a little bit by increasing the cost of money, they’re going to help alleviate somewhat those supply chain problems, and this inflation. I should tell you that even the Federal Reserve does not believe it’s going to be able to get interest rates below. I think it’s 4.2% by the end of the year. So –

Kimberly Adams: Wait – not interest rates, inflation.

Kai Ryssdal: Sorry, thank you very much – inflation. And absolutely, even the Federal Reserve does not believe it can get inflation below 4.2%. By the end of the year. So it’s going to raise interest rates throughout this calendar year in the hopes of controlling demand. But it’s a little bit tricky. This time round. trickier than most thank you for the correction.

Kimberly Adams: Yes, what Kai said.

Kai Ryssdal: That’s what I got. Yeah. Okay. No, it was really good question, right? Because it look, it’s not J pal can’t make all this stuff happen, you know, snapped his fingers anyway. Well, I was just gonna say it’s also not super intuitive. This idea that you raise one thing to stop raising prices like, yeah, it’s confusing, The whole idea that what they’re trying to do is slow the – they want to hurt the economy. Right. And the baldest  sense is a little bit counterintuitive. Absolutely. Yeah. So onto the next question. Brian has been paying attention to NFT’s non fungible tokens. We’re going to get into that in the answer, I hope, and the idea that you can have proof of ownership of a piece of digital art. So here’s what he wrote. “I’m wondering, Brian says Whether a more practical use in the future might be for verifying the authenticity of a photograph or video clip, especially as doctored images or deep fakes are likely to grow in number and sophistication.” Miss Adams over to you. Potentially is is the short answer. And here comes the longer one. First of all as like good background reading on this, my – our colleague, Janet Nguyen did a really nice explainer on this, it’s going to be in the show notes and it gets into blockchain NFT and crypto and all sorts of things really useful. So, NFT’s non-fungible tokens, as was mentioned earlier is this idea that it’s a digital asset on the blockchain specifically, it’s sort of like a certificate that points to a particular digital asset, and says that thing over there, that’s mine. And here’s my piece of paper that proves it. Now, I had a very interesting conversation over on tech with someone, when Nike and who else Nike and a bunch of like high-end luxury brands were trying to sue people who made NFT’s of their items. And it’s like, you can’t really sue them for copyright infringement, at least we don’t think they can yet. Because they’re not copying your product. They’re just pointing to an image of the product. And so they’re not duplicating your product. And so there’s like new case law that’s literally being developed at this very, very time. And the guest gave an amazing explanation of NFT’s that I have found really helpful. Remember, back in the 90s, when you could name a star, and it was like, name star after your loved one. And that’ll be their special star, and you paid some money. And effectively, somebody wrote your name down on a book and said, This star is associated with this name, here’s a certificate to prove it. But at the same time, it’s not like you had the star. Not like you can do anything with the star, and nothing really stopping other people from making their own list of people who own stars. So NFT’s are a thing, okay. But to the specific question about whether or not it might be good for verifying the authenticity of photographs or videos, possibly. So the team got in touch with Dr. Hany Farid in electrical engineering and computer science professor at the University of California, Berkeley. And he said, there are camera  apps that can capture lots of data for an image or video, like the time, the date geolocation, recorded pixels, all this stuff, that gives you a really clear imprint, that this is a real image that was taken at this time. And then those apps can take a digital signature from the data cryptographically sign it, and then put it on the blockchain. So wherever that image goes on the internet, you can follow that blockchain back to the original and compare it to what you’re seeing to see it’s real. Now, I should mention, the doctor is a paid advisor to an app that does this, which is called TruePic. And it could happen and this could be useful, and it could be quite secure. But two downsides. Number one, you have to take the image with that kind of specialized app, which isn’t in very wide use now. Another downside is that blockchain may not scale well enough for all of the images and all of the videos in the world every day. So but at the same time, people who watch this space disinformation and also women’s rights groups, because deep fakes and doctored videos can really be used in revenge porn and really toxic and dangerous ways. They are hopeful that blockchain might address some of these things. Yes. So fingers crossed. Maybe.  Yeah, I think it’s yeah, it’s so interesting. It’s such newish technology. It’s um, you know, it’s clearly the wave the wave of the future, this and Web3 and the blockchain and all that jazz. I just we’re not, we don’t all understand it well enough yet. You know, I think that’s the problem. Certainly for me. Well, and the problem layered on top of that problem is a lot of people who also don’t understand it are spending money on it or investing in it. Some are spending like real money. Yeah, for sure. Yes, absolutely. And so, you know, just be careful out there folks, like if you don’t understand a product might not be the best thing to dump your hard earned cash into. Alright, here is a listener with a slightly different question about those interest rate hikes.

Clint: Hi Kai and Kimberly, this is Clint from Austin. And I’m curious after the rates were boosted by a quarter points this past week, I noticed the stock market actually went up and ended on a pretty good positive note. I guess I was expecting that the rate hike was going to cause the economy or the stock market to slow down or go down. I’m curious why it went up. Thanks for making me smart.

Kai Ryssdal: So, couple of things. Number one stock market is not the economy. Let’s all remember that repeat after me stock market is not the economy just for the record. But here’s here’s the deal on on what happened last Wednesday, first of all, I’m going to give the specific answer and then a general answer. In the moment when Jay Powell came out, and he was really hawkish, which is to say he gave off the vibe of we’re gonna raise interest rates until we get this damn thing under control. In that moment, stocks actually dropped, right traders and investors went, “Oh, my God, it’s terrible. They’re raising rates.” And then they sat back and thought about it for a minute. And stocks finished the day up. So there’s that. But look, a couple of things. Number one, everybody and their grandmother knew that Jay Powell was going to raise interest rates that day, that was not a surprise. So the market had priced in the increase in the cost of money. Number one, right, they knew was coming, no big deal. Number two, inflation is really bad for this economy right now. And traders and companies understand that getting it under control is the most important job Jay Powell has. And if he and the Fed decide they’re gonna raise interest rates to do it. You go, Jay, we’re with you. That’s number two. And number three, I would really encourage people to discount the day-to-day volatility in the stock market, especially right now, with the war on and all of the uncertainty that that has brought day-to-day movements, honestly, check them and then move on if you want to, or, or listen, you know, to Marketplace and hear what kind of music it is. And then don’t listen to the rest of it. Well listen to the rest of it. But you know what I mean. Just keep an eye on the trend, keep an eye on bigger picture, but day-to-day movements and individual stocks or individual indices. They’re not your friend right now, because volatility is just is just out of control. So there you go. I just want to add a quick caveat on “the inflation is really bad for this economy right now.” Except that part of the inflation that we’re seeing is due to wage growth, especially in a lot of service sector and jobs that were typically low income. And so those people making more money is also contributing to prices going up. So not all of it is universally bad. So right. Let’s do this last question real quick.  Next one? Next one. Let’s hit it.

Adam: Hi, this is Adam from Hermosa Beach. My question is, who owns the data? When you talk about autonomous vehicles such as Tesla, now that the tractor world ag sector is getting into it, who owns that data? Is it the GPS companies with tractor manufacturers is the individual’s equipment. Anyway, thanks for making smart.

Kai Ryssdal: Huh.

Kimberly Adams: It is still being decided is the answer. It’s a question automakers have added so much additional tech to their cars that can track behavior, how you’re driving, what you’re listening to, etc, is a bunch of apps in there. And for the most part, at least according to a review of a lot of these laws and the Harvard Journal of Law and technology from back in 2018. So a little bit ago, it’s mostly that data belongs to the car companies. And there are several states that are trying to push legislation to give consumers more control that data, but it is a work in progress. On the tractor question specifically, the team wrote to John Deere, the tractor makers with that question. And here’s what they said, “Farmers have control over their data, we will only use that information to enhance machine performance and quality. We believe that the insights and information will be a key part of meeting our industry’s collective goal to produce enough food and build the infrastructure required to sustain growing world population. And that the farmers control their data and who they share it with and when.” Control is different than own  But yeah, point made.

Kai Ryssdal: Lots of data and all its mobile and all that jazz anyway. Alright, so real quick, two things on the way out here. Number one, you’ll notice we have not asked you for money. And you know why? Because you already did it. You already did it. We had a goal of $100,000 you hit 102,000. And I just I want to say thanks because the kind of journalism that we do. It ain’t cheap. And it’s not just me and Kimberly. It’s the whole team that helps put this podcast and all the other Marketplace podcasts on the air and the broadcast shows and the digital work and all of that stuff. Thank you. Thank you for doing this. We really appreciate it make me smart, and all the rest of them. marketplace.org/givesmart by the way if you’re still in the mood. Alright, that’s it.

Kimberly Adams: Yes. Thank you for real and to celebrate a little announcement. We are going to do something extra special for this week’s Friday episode. Economics on Tap. Kai’s laughing. This is purely for me. We’re gonna have a cherry blossom party. Well, I hope you enjoy it.

Kai Ryssdal: Well, there’s a box of stuff inside the house that bridges me that I have to go open to see what she’s mailed me. I don’t even know.

Kimberly Adams: Yes. Which is a hint that if you don’t usually join us for the live stream, you might want to this time, there will be thematic things, shall we say? So we’re gonna have a good time. So if you if you can watch it, and you’re able to, that’ll be great.

Kai Ryssdal: And then it’s all about, as Kimberly said, it’s for her, it’s because she hasn’t been able to have her cherry blossom party for the past few years. That’s why,

Kimberly Adams: You know, after our talk about that the other day, I gave it a real hard think. And, and I’m gonna go ahead and do it. I’m gonna go ahead and do it. I sent out the invites last night. So it should be fun. And, folks, as as you’re preparing for Economics on Tap, go for the theme come up with a cool cherry blossom themed drink. I’ll get things going one of my favorite mocktails that I do around cherry blossom time, pomegranate juice, ginger beer, maybe with like a little sprig of mint. And if you want to, you can always throw in a dash of bitters and it’s pink.

Kai Ryssdal: I’m going to be drinking beer. I’m going to be drinking beer. Alright, we’re done. We’re going thanks for listening. We’ll be back tomorrow news and some Make Me Smile finish your questions for Whaddya Want to Know Wednesday you can email us make me smart at marketplace that org or leave a voicemail 508 You be smart. And that’s the show for this Wednesday. Boom.

Kimberly Adams: Make Me Smart is produced by Marissa Cabrera and Marque Green with production help from our intern Tiffany Bui.

Kai Ryssdal: Jayk Cherry was in charge of the studios in LA. Ben Tolliday and Daniel Ramirez composed our theme music our senior producer is Bridget Bodnar. I will tell you that she told me there is another box of cherry blossom stuff coming tomorrow so I don’t even know what’s going on. She’s also slacking me now and saying you have to find a cherry blossom beer. No I don’t. I don’t I don’t.

Kimberly Adams: Come on be festive.

Kai Ryssdal: Have you met me?

Kimberly Adams: Yes. Be festive. Step outside of your box.

Kai Ryssdal: Oh good grief.

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