Bill Ackman, the founder of Pershing Square Capital Management is a well-known voice in the financial markets. In his recent tweets, Ackman took aim at Jerome Powell and the Federal Reserve for not acting decisively enough to curb sky-high inflation. He stressed that inflation was now out of control and worse, that the markets no longer had confidence in the Fed. In his view, the Fed must commit to a substantial increase in rates to bring price rises within the target range. He believes that the current policy is “setting us up for double-digit sustained inflation”, and is responsible for the bloodbath in equity markets. If the Fed seizes the moment, Ackman feels equities can recover well.
Widespread fears of runaway inflation have changed from keep-me-up-at-night horror stories to eye-watering prints of over 8%. Such a situation was scarcely imaginable for most even till last year. Ackman is correct to point out that the Fed’s misses since the Great Recession have gravely dented its credibility as the inflation fighter.
Despite the best efforts of the collective mind at the Federal Reserve, inflation was nigh unmovable for years, staying well below the oft-touted 2% target. As Noah Smith wrote, “economists don’t really have theories that can predict things like inflation or unemployment with any sort of reliability”.
Inflation is a hard problem, and the markets are wise to the fact that no one fully understands how to address it.
Of course, today, the challenge is very different. The issue is not too little but too much. High inflation in a sense is a better problem for policymakers, because the primary weapon of interest rates hikes re-discover their potency. However, as we shall see, there are caveats to this.
Firstly, the unprecedented turnaround in inflation was not due to the magic of zero-interest policies but a host of external factors – the unprecedented covid pandemic, subsequent lockdowns, the gargantuan injection of fiscal stimulus, and most recently, the outbreak of the Russia-Ukraine war.
The majority of these factors are well outside the control of the Federal Reserve.
More so than the failures of monetary policy from 2008 onwards, the Fed’s image has been irreparably tarnished by its insistence that inflationary pressures were ‘transitory’. The combination of ultra-loose economic policy, simmering tensions, and unwillingness to acknowledge the gathering clouds, thrust inflation from the high asset prices of Wall Street to supermarkets on Main Street.
This loss of credibility should theoretically render the Fed less effective, and dilute its ability to guide the narrative to the promised land of a low-inflation soft landing.
How much should rates be raised?
Interest rates are designed to work primarily through a demand channel. The thinking is that higher rates reduce demand, and reduced demand lowers inflation. In Q1, GDP contracted amid higher international oil prices which reverberated through the production chain; and a widening trade gap. Demand growth was robust but this may be somewhat illusory, occurring on the back of low unemployment, savings, and earlier fiscal injections.
Domestic supply chains in the United States are yet to fully recover after two years of public health restrictions, while global sea freight indexes have declined for the third month running. Crucial imports such as fertilizers are in short supply with the onset of the Ukraine-Russia war and subsequent sanctions. Gasoline prices in particular have surged to $4.6, hurting the average American.
Suffice it to say that much inflation is supply-driven, blunting the use of policy rates to bring the economy closer to the 2% level.
Even though the Fed has tried to present a brave face, as Ackman points out, 2-3% increases in the rates are unlikely to contain inflationary pressures and are not nearly high enough. Usually, one may expect that interest rates would need to be higher than inflation to be effective. In Paul Volcker’s era, rates were raised to a record 20% to restrain consumer prices that reached 13% year over year.
Specifically, Ackman says that the rates should immediately be raised to the neutral rate.
The neutral rate is a theoretical construct – the rate where growth is not restricted by being too high, nor a rate so low that inflation is beyond control. As Ackman argues, if the rates are neutral, inflation can be managed without causing a recession (or worse). The big problem with that assertion is that no one knows where the neutral rate lies, with James Bullard of the Federal Reserve calling it “The Phantom Menace”.
Unfortunately, no bag of Jedi mind tricks can help here, and the Fed is much more likely to either overshoot or be under the neutral level. Ackman’s tweets and the current rate hike hesitancy suggest that the Fed is destined to be well below this, and consequently, unable to restrain inflation.
The Wage-Price Spiral
In developed markets such as the United States, wages play a major role in inflation. Ackman points to the “wage-price spiral”. This is the idea that as unemployment falls, workers gain bargaining power and demand higher wages. As wages rise, companies find costs go up and employees have more money to spend. This combination leads to higher prices, pushing workers to ask for higher wages, perpetuating inflation. Today, Ackman sees this as a big concern, due to unemployment falling to a low level of 3.6%.
The wage-price spiral was central to the high inflation of the 1970s-80s. However, today, opinions vary if the US is really in such a situation. The biggest challenge to a wage-price spiral in the United States is the lack of labor power. In the 1970s, labor unions were very powerful entities that could secure higher wages through collective bargaining. This changed with the onset of globalization. The US suddenly had access to a much broader labor pool, and this naturally reduced wages. Outsourcing and the introduction of technologies such as industrial automation further weakened labor’s collective bargaining power. As a result, it is unclear if workers can demand higher wages to keep pace with inflation.
Even though companies have been raising nominal wages, they have not kept pace with inflation. Inflation-adjusted wages have actually fallen 3.6% in the past 12 months.
As nominal wages climb but real wages fall, this may prompt exits from the job market resulting in the tight labor market being only a temporary phenomenon. If the job market happens to weaken, the Federal Reserve may be reluctant to raise rates as aggressively, since a major contributor to inflation would be absent.
Sustained rate hikes?
Although the Federal Reserve has certainly shown greater initiative to raise rates than what has been typical in recent years, it is uncertain how sustainable this may be. For instance, in 2019, the Fed was forced to reverse course on its policy normalization objectives. History suggests that any instance of imploding equities and burgeoning debt payments amid lowered growth projections could force a reversal from Powell and company.
In a bear market, with easy money drying up, inflated asset values, and a multitude of zombie companies, are likely to crumble. If stocks fall, this may cascade into the real economy and reduce employment, again possibly forcing a course adjustment.
Today, with GDP contracting and eight successive weeks of declining equities, raising rates would likely have catastrophic effects leading to rising debt burdens in a country fueled by credit-driven consumerism, precipitating a deep recession. This would be met by social upheaval and a popular backlash that may weaken the Fed’s resolve into U-turning.
The markets, now accustomed to free money, have little appetite for continuing rate hikes. With the interest rate cycle barely having begun, there are murmurs among financial players of a “Fed pause”, or an interval (so to speak) after September. As Ackman has tweeted, in recent times, the Fed communications themselves have suggested some officials believe that there may be scope to Pause.
Analysts at Brown Brothers Harriman wrote, “The views expressed in the minutes are about all they could say at the start of an aggressive tightening cycle where no one really knows how far rates have to go.” John Vail of Nikko Asset Management believes that the Fed will not go for a Pause because it will continue to attack inflation regardless of the source (supply and not demand-led). In addition, an interrupted rate hike cycle will likely ensure inflation stays for longer.
Although Ackman’s prescription would artificially destroy demand and likely stem inflation, the dose would not only have to be very high to be effective, but the medicine itself would be very difficult to keep taking.
Despite the pain involved, Ackman is right that if the Fed does not react or does not react fast enough, “the market will do the Fed’s job”. This is quite like exactly what will happen, as inflation will continue unabated, although pressures may be limited if a wage-price spiral does not materialize. Consumers will buckle down and businesses will be forced to cut back, leading to a crash in the stock market, wiping out savings and asset values, and finally resulting in a deep demand deficit.
Some commentators argue that inflation may have peaked already. Even so, the inflation genie is out of the bottle and likely to persist. Supply disruptions and inflation expectations don’t reset instantly. To add to this, the Ukraine war still rages and the full effects of monkeypox are yet to be ascertained. In a worst-case scenario, Chinese measures over the weekend to end covid lockdowns may only prove temporary. Leading inflation indicators such as PPI are elevated at above 11%. Ackman is right to suggest that without swift action, prices will continue to climb and persist into the coming year.
Even if a fortuitous series of happenstances were to magically combine, this would likely not be sufficient to lower inflation to the 2% level.
As discussed earlier, monetary policy is not the only thing affecting inflation, but it is the only aspect that the Fed can exert control on.
In the US, inflation also occurs from structural problems such as a lack of modern transportation, poor infrastructure, costly healthcare, low productivity, and aging demographics. These can’t simply be alleviated by altering monetary policy, and will likely keep inflation sticky. Rates would have to be kept very high for a prolonged period, harboring major risks to the economy.
However, if interest rates are aggressively hiked, the ensuing recession will prevent crucial investments in these troubled sectors, contributing to inflation.
According to Dr. Komal Sri-Kumar, macroeconomic advisor and senior fellow at the Milken Institute, “The Fed is in an impossible situation”, and believes that higher rates would result in a 2008-style recession.
A Final Word
To meaningfully restrain inflation, the Fed will have to aggressively front-load interest rates as Ackman suggests. They may also have to rise above the level of inflation and would likely have a very limited impact in the low single digits.
However, high rates would cause significant pain to households, leading to demand destruction in an environment that is already showing signs of broader contraction. For May, the University of Michigan’s US Consumer Sentiment gauge fell from 65.2 to 58.4, reflecting economic fragility.
Dr. Komal Sri-Kumar believes that the opportunity for a softer landing has passed by in mid-2021. In his view, the Fed could have opted to raise target inflation to between 3%-3.5% and hiked rates accordingly. By delaying the process of normalization, he feels that the Fed “lost degrees of freedom”.
Mohamed El-Erian, Chief Economic Advisor at Allianz, agrees that the Fed has left it too late and “should have started hiking nine months ago to put the economy in a position for a so-called soft landing”. Worryingly, he added, “I think the Fed is going to have to decide between two policy mistakes: hit the brakes too hard and risk a recession or tap the brakes in a stop-go pattern … and risk having inflation well into 2023.”
The higher the rates climb; the greater harm would come to the economy. In such a situation, it is difficult to imagine equities performing well. Although Ackman expects at least real business stocks to rebound, this is far from guaranteed in a scenario where demand has collapsed.
Even though his views are clear, it may be difficult to implement Ackman’s ideas, or even agree upon how to deliver them. On the other hand, not delivering on this, could damage the Fed’s reputation further, while high inflation will continue to persist.
As it stands, the Fed is caught between a rock and a hard landing.
An enduring mystery for three years is how Donald Trump came to be the president who shut down American society for what turned out to be a manageable respiratory virus, setting off an unspeakable crisis with waves of destructive fallout that continue to this day.
Let’s review the timeline and offer some well-founded speculations about what happened.
On March 9, 2020, Trump was still of the opinion that the virus could be handled by normal means.
So last year 37,000 Americans died from the common Flu. It averages between 27,000 and 70,000 per year. Nothing is shut down, life & the economy go on. At this moment there are 546 confirmed cases of CoronaVirus, with 22 deaths. Think about that!
What changed? Deborah Birx reports in her book that Trump had a friend die in a New York hospital and this is what shifted his opinion. Jared Kushner reports that he simply listened to reason. Mike Pence says he was persuaded that his staff would respect him more. No question (and based on all existing reports) that he found himself surrounded by “trusted advisors” amounting to about 5 or so people (including Mike Pence and Pfizer board member Scott Gottlieb)
It was only a week later when Trump issued the edict to close all “indoor and outdoor venues where people congregate,” initiating the biggest regime change in US history that flew in the face of all rights and liberties Americans had previously taken for granted. It was the ultimate in political triangulation: as John F. Kennedy cut taxes, Nixon opened China, and Clinton reformed welfare, Trump shut down the economy he promised to revive. This action confounded critics on all sides.
A month later, Trump said his decision to have “turned off” the economy saved millions of lives, later even claiming to have saved billions. He has yet to admit error.
....My Administration and I built the greatest economy in history, of any country, turned it off, saved millions of lives, and now am building an even greater economy than it was before. Jobs are flowing, NASDAQ is already at a record high, the rest to follow. Sit back & watch!
Even as late as June 23rd of that year, Trump was demanding credit for having followed all of Fauci’s recommendations. Why do they love him and hate me, he wanted to know.
We did a great job on CoronaVirus, including the very early ban on China, Ventilator production, and Testing, which is by far the most, and best, in the World. We saved millions of U.S. lives.! Yet the Fake News refuses to acknowledge this in a positive way. But they do give....
Something about this story has never really added up. How could one person have been so persuaded by a handful of others such as Fauci, Birx, Pence, and Kushner and his friends? He surely had other sources of information – some other scenario or intelligence – that fed into his disastrous decision.
In one version of events, his advisors simply pointed to the supposed success of Xi Jinping in enacting lockdowns in Wuhan, which the World Health Organization claimed had stopped infections and brought the virus under control. Perhaps his advisors flattered Trump with the observation that he is at least as great as the president of China so he should be bold and enact the same policies here.
One problem with this scenario is timing. The Oval Office meetings that preceded his March 16, 2020, edict took place the weekend of the 14th and 15th, Friday and Saturday. It was already clear by the 11th that Trump was ready for lockdowns. This was the same day as Fauci’s deliberately misleading testimony to the House Oversight Committee in which he rattled the room with predictions of Hollywood-style carnage.
On the 12th, Trump shut all travel from Europe, the UK, and Australia, causing huge human pile-ups at international airports. On the 13th, the Department of Health and Human Services issued a classified document that transferred control of pandemic policy from the CDC to the National Security Council and eventually the Department of Homeland Security. By the time that Trump met with Fauci and Birx in that legendary weekend, the country was already under quasi-martial law.
Isolating the date in the trajectory here, it is apparent that whatever happened to change Trump occurred on March 10, 2020, the day after his Tweet saying there should be no shutdowns and one day before Fauci’s testimony.
That something very likely revolves around the most substantial discovery we’ve made in three years of investigations. It was Debbie Lerman who first cracked the code: Covid policy was forged not by the public-health bureaucracies but by the national-security sector of the administrative state. She has further explained that this occurred because of two critical features of the response: 1) the belief that this virus came from a lab leak, and 2) the vaccine was the biosecurity countermeasure pushed by the same people as the fix.
Knowing this, we gain greater insight into 1) why Trump changed his mind, 2) why he has never explained this momentous decision and otherwise completely avoids the topic, and 3) why it has been so unbearably difficult to find out any information about these mysterious few days other than the pablum served up in books designed to earn royalties for authors like Birx, Pence, and Kushner.
Based on a number of second-hand reports, all available clues we have assembled, and the context of the times, the following scenario seems most likely. On March 10, and in response to Trump’s dismissive tweet the day before, some trusted sources within and around the National Security Council (Matthew Pottinger and Michael Callahan, for example), and probably involving some from military command and others, came to Trump to let him know a highly classified secret.
Imagine a scene from Get Smart with the Cone of Silence, for example. These are the events in the life of statecraft that infuse powerful people with a sense of their personal awesomeness. The fate of all of society rests on their shoulders and the decisions they make at this point. Of course they are sworn to intense secrecy following the great reveal.
The revelation was that the virus was not a textbook virus but something far more threatening and terrible. It came from a research lab in Wuhan. It might in fact be a bioweapon. This is why Xi had to do extreme things to protect his people. The US should do the same, they said, and there is a fix available too and it is being carefully guarded by the military.
It seems that the virus had already been mapped in order to make a vaccine to protect the population. Thanks to 20 years of research on mRNA platforms, they told him, this vaccine can be rolled out in months, not years. That means that Trump can lock down and distribute vaccines to save everyone from the China virus, all in time for the election. Doing this would not only assure his reelection but guarantee that he would go down in history as one of the greatest US presidents of all time.
This meeting might only have lasted an hour or two – and might have included a parade of people with the highest-level security clearances – but it was enough to convince Trump. After all, he had battled China for two previous years, imposing tariffs and making all sorts of threats. It was easy to believe at that point that China might have initiated biological warfare as retaliation. That’s why he made the decision to use all the power of the presidency to push a lockdown under emergency rule.
To be sure, the Constitution does not allow him to override the discretion of the states but with the weight of the office complete with enough funding and persuasion, he could make it happen. And thus did he make the fateful decision that not only wrecked his presidency but the country too, imposing harms that will last a generation.
It only took a few weeks for Trump to become suspicious about what happened. For weeks and months, he toggled between believing that he was tricked and believing that he did the right thing. He had already approved another 30 days of lockdowns and even inveighed against Georgia and later Florida for opening. He went so far as to claim that no state could open without his approval.
For the purpose of creating conflict and confusion, some in the Fake News Media are saying that it is the Governors decision to open up the states, not that of the President of the United States & the Federal Government. Let it be fully understood that this is incorrect....
There is another fascinating feature to this entirely plausible scenario. Even as Trump’s advisors were telling him that this could be a bioweapon leaked from the lab in China, we had Anthony Fauci and his cronies going to great lengths to deny it was a lab leak (even if they believed that it was). This created an interesting situation. The NIH and those surrounding Fauci were publicly insisting that the virus was of zoonotic origin, even as Trump’s circle was telling the president that it should be regarded as a bioweapon.
Fauci belonged to both camps, which suggests that Trump very likely knew of Fauci’s deception all along: the “noble lie” to protect the public from knowing the truth. Trump had to be fine with that.
Gradually following the lockdown edicts and the takeover by the Department of Homeland Security, in cooperation with a very hostile CDC, Trump lost power and influence over his own government, which is why his later Tweets urging a reopening fell on deaf ears. To top it off, the vaccine failed to arrive in time for the election. This is because Fauci himself delayed the rollout until after the election, claiming that the trials were not racially diverse enough. Thus Trump’s gambit completely failed, despite all the promises of those around him that it was a guaranteed way to win reelection.
To be sure, this scenario cannot be proven because the entire event – certainly the most dramatic political move in at least a generation and one with unspeakable costs for the country – remains cloaked in secrecy. Not even Senator Rand Paul can get the information he needs because it remains classified. If anyone thinks the Biden approval of releasing documents will show what we need, that person is naive. Still, the above scenario fits all available facts and it is confirmed by second-hand reports from inside the White House.
It’s enough for a great movie or a play of Shakespearean levels of tragedy. And to this day, none of the main players are speaking openly about it.
Jeffrey A. Tucker is Founder and President of the Brownstone Institute. He is also Senior Economics Columnist for Epoch Times, author of 10 books, including Liberty or Lockdown, and thousands of articles in the scholarly and popular press. He speaks widely on topics of economics, technology, social philosophy, and culture.
Why children are less likely to become severely ill with COVID compared with adults is not clear. Some have suggested that it might be because children are less likely to have diseases, such as type 2 diabetes and high blood pressure, that are known to be linked to more severe COVID. Others have suggested that it could be because of a difference in ACE2 receptors in children – ACE2 receptors being the route through which the virus enters our cells.
Some scientists have also suggested that children may have a higher level of existing immunity to COVID compared with adults. In particular, this immunity is thought to come from memory T cells (immune cells that help your body remember invading germs and destroy them) generated by common colds – some of which are caused by coronaviruses.
We put this theory to the test in a recent study. We found that T cells previously activated by a coronavirus that causes the common cold recognise SARS-CoV-2 (the virus that causes COVID) in children. And these responses declined with age.
Early in the pandemic, scientists observed the presence of memory T cells able to recognise SARS-CoV-2 in people who had never been exposed to the virus. Such cells are often called cross-reactive T cells, as they stem from past infections due to pathogens other than SARS-CoV-2. Research has suggested these cells may provide some protection against COVID, and even enhance responses to COVID vaccines.
What we did
We used blood samples from children, sampled at age two and then again at age six, before the pandemic. We also included adults, none of whom had previously been infected with SARS-CoV-2.
In these blood samples, we looked for T cells specific to one of the coronaviruses that causes the common cold (called OC43) and for T cells that reacted against SARS-CoV-2.
We used an advanced technique called high-dimensional flow cytometry, which enabled us to identify T cells and characterise their state in significant detail. In particular, we looked at T cells’ reactivity against OC43 and SARS-CoV-2.
We found SARS-CoV-2 cross-reactive T cells were closely linked to the frequency of OC43-specific memory T cells, which was higher in children than in adults. The cross-reactive T cell response was evident in two-year-olds, strongest at age six, and then subsequently became weaker with advancing age.
We don’t know for sure if the presence of these T cells translates to protection against COVID, or how much. But this existing immunity, which appears to be especially potent in early life, could go some way to explaining why children tend to fare better than adults with a COVID infection.
Our study is based on samples from adults (26-83 years old) and children at age two and six. We didn’t analyse samples from children of other ages, which will be important to further understand age differences, especially considering that the mortality rate from COVID in children is lowest from ages five to nine, and higher in younger children. We also didn’t have samples from teenagers or adults younger than 26.
In addition, our study investigated T cells circulating in the blood. But immune cells are also found in other parts of the body. It remains to be determined whether the age differences we observed in our study would be similar in samples from the lower respiratory tract or tonsil tissue, for example, in which T cells reactive against SARS-CoV-2 have also been detected in adults who haven’t been exposed to the virus.
Nonetheless, this study provides new insights into T cells in the context of COVID in children and adults. Advancing our understanding of memory T cell development and maturation could help guide future vaccines and therapies.
Marion Humbert received funding from KI Foundation for Virus Research (Karolinsk Institutet, Sweden) and Läkare mot AIDS (Sweden).
Annika Karlsson receives funding from the Swedish Research Council (Dnr 2020-02033), CIMED project grant, senior (Dnr: 20190495), and Karolinska Institutet (Dnr: 2019-00931 and 2020-01599).
HAMILTON, ON – Mar 24, 2024– Tobacco users in Canada are exposed to higher levels of cyanide than smokers in lower-income nations, according to a large-scale population health study from McMaster University.
Credit: McMaster University
HAMILTON, ON – Mar 24, 2024– Tobacco users in Canada are exposed to higher levels of cyanide than smokers in lower-income nations, according to a large-scale population health study from McMaster University.
Scientists made the discovery while investigating the molecule thiocyanate – a detoxified metabolite excreted by the body after cyanide inhalation. It was measured as a urinary biomarker of tobacco use in a study of self-reported smokers and non-smokers from 14 countries of varying socioeconomic status.
“We expected the urinary thiocyanate levels would be similar across regions and reflect primarily smoking intensity. However, we noticed significant elevation of thiocyanate in smokers from high-income countries even after adjusting for differences in the number of cigarettes smoked per day,” says Philip Britz-McKibbin, co-author of the study and a professor of chemistry and chemical biology at McMaster.
Tobacco-related illness remains the leading cause of preventable illness and premature death in Canada, contributing to approximately 48,000 deaths annually. According to researchers, the findings could be caused by the type of cigarettes smoked in high-income countries like Canada.
“The cigarettes commonly consumed in Canada are highly engineered products with lower tar and nicotine content to imply they’re less harmful. Heavy smokers with nicotine dependence compensate by smoking more aggressively with more frequent and deeper inhalations that may elicit more harm, such as greater exposure to the respiratory and cardiotoxin, cyanide.”
Smoking rates in Canada have declined from 26 per cent in 2001 to 13 per cent in 2020. But participation in smoking cessation programs has declined during the COVID-19 pandemic, leading to concern about a potential uptick in smoking rates, including cannabis use and a plethora of vaping of products popular among young adults.
Researchers say urinary thiocyanate can serve as a robust biomarker of the harms of tobacco smoke that will aid future research on the global tobacco picture, since most smokers now reside in developing countries. As smoking rates have decreased here in Canada, at-risk groups like youth and pregnant women have been prone to underreport their tobacco use when surveyed, making a reliable biomarker more valuable.
“Historically assessing tobacco behaviors have relied on questionnaires that are prone to bias, especially when comparing different countries and local cultures. The idea is to find robust methods that can quantify recent tobacco smoke exposure more reliably and objectively, which may better predict disease risk and prioritize interventions for smoking cessation.” says Britz-Mckibbin.
The study was published in the latest issue of Nicotine and Tobacco Research and received funding from the Natural Sciences and Engineering Research Council of Canada, Genome Canada, the Canada Foundation for Innovation,Hamilton Health Sciences New Investigator Fund, and an internal grant from the Population Health Research Institute.
For more information please contact:
Photos of Philip Britz-McKibbin can be found here
Credit: McMaster University
Nicotine & Tobacco Research
Method of Research
Subject of Research
Validation of Urinary Thiocyanate as a Robust Biomarker of Active Tobacco Smoking in the Prospective Urban and Rural Epidemiological Study