Shifting Perspectives: Understanding the New Economic Era Beyond CNBC's Obsessions

In my recent CMSWire Book Review for "Shocks, Crises, and False Alarms" by Phillip Carlsson-Szlezak and Paul Swartz, I focused on the book’s insights for CMOs and CEOs. However, I'd like to highlight a few points here for market pundits and analysts. Observing CNBC, it's evident that there's an overwhelming focus on predicting market direction, the timing of interest rate cuts, and the potential magnitude of these cuts. This preoccupation with short-term market movements seems to be overshadowing more critical long-term economic factors and structural trends that can provide deeper insights for market watchers.

As described in the article, the authors suggest that the post pandemic inflation trigger was not a structural failure, but rather a cyclical event induced by the pandemic. They claim the inflation spike was a result of demand-supply mismatches, not a structural break, with long-term inflation expectations remaining stable. The authors argue the risk of structural inflation was overstated. This means market pundits should be putting a bit more trust in economic signals, have faith in monetary policy, and grasp the business implications. By the end of 2023, the authors conclude, the economy demonstrated greater resilience than one would have anticipated from news reports.

So where are we going from here? According to Carlsson-Szlezak and Swartz, we are entering an era of tightness and growth. This shift necessitates a more efficient allocation of resources within this economic regime. Tight economies result in several things: more jobs, increased investment, productivity growth, and efficient resource allocation. Going forward, this means leaders should find investing more challenging and will face greater rate volatility. However, smart businesses will learn to live with higher rates, adapting to the evolving economic landscape.

?

Clearly, this is a major shift. However, near zero interest rates have never been a norm, and the previous period was an anomaly, characterized by labor surplus. Given this context, why is CNBC so fixated on whether there will be a soft landing or a recession? Why are they perplexed by inflation estimates and Fed communications? Carlsson-Szlezak and Swartz challenge these concerns, suggesting that understanding the broader economic changes is more critical than obsessing over short-term market predictions. For a deeper dive into their insights, read the full book review here.