Chamath @ 00:25:51Right
economy
Given U.S. CPI readings successively above 5% in 2021–2022, the Federal Reserve will ultimately need to raise the federal funds rate to at least the level of CPI (i.e., into the mid‑single digits, roughly double the then‑assumed equilibrium rate) in order to bring inflation back under 5%.
We've never seen a moment in history, in American history where when CPI has printed successively above 5% that it got under 5% without fed funds getting to that same number. So we should all hope that this is the exception that proves the rule. But there's an enormous amount of data that would tell you that we have to take rates to double what the equilibrium rate is thought to be right now.View on YouTube
Explanation
Evidence from the inflation and rate paths lines up with Chamath’s forecast.
- CPI above 5%: U.S. headline CPI ran well above 5% through 2021–2022, peaking at 9.1% year‑over‑year in June 2022 and remaining elevated into early 2023. (usinflationcalculator.com)
- CPI falls below 5%: CPI first fell back under 5% in April 2023, printing 4.9% year‑over‑year (the first sub‑5% reading since June 2021). (cnbc.com)
- Fed funds path: The Fed began hiking in March 2022 and kept raising its target range until it reached 4.75–5.00% at the March 22, 2023 FOMC meeting, then 5.00–5.25% in May and ultimately 5.25–5.50% in July 2023. (forbes.com)
By the time inflation dropped below 5% (April 2023), the federal funds target range already had an upper bound of 5.0%, i.e., mid‑single digits and roughly double the pre‑hiking “equilibrium” assumption around 2.5%. This matches the core of Chamath’s prediction: that, given CPI had run above 5%, the Fed would ultimately have to lift rates up to roughly the CPI level (mid‑single digits) to get inflation back under 5%. While we can’t prove this level was strictly necessary in a causal sense, the actual policy path and timing of inflation’s decline are consistent with what he said would need to happen, so the prediction is best classified as right.