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“Inflation is much too high,” Jerome Powell, chair of the U.S. Federal Reserve, told the National Association for Business Economics in a speech earlier this month.
No kidding.
Powell’s speech, and his news about inflation, came a week after the Fed raised interest rates for the first time since 2018 in a belated attempt to tackle inflation that ran at 7.9 percent in February, a 40-year record pace.
“We will take the necessary steps to ensure a return to price stability,” he vowed.
“If we conclude that it is appropriate to move more aggressively by raising the [interest] rate by more than 25 basis points at a meeting or meetings, we will do so,” he added, “and if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
Markets are now pricing in the growing likelihood that the Fed’s next rate hike will be one-half point, double the quarter-point boost it enacted earlier this month.
As Powell spoke, stock prices slid to their session lows.
Although Powell still blames inflation’s energy on the post-COVID demand surge and supply chain chaos, and now the Ukraine war, he admitted that he and his Fed colleagues “widely underestimated” inflation’s power to endure.
As usual, Powell pledged that the central bank will use its full array of tools and act expeditiously to contain rising prices.
TRENDPOST: In “ECB Economist Does a 180 on Inflation” (22 Feb 2022), we diagnosed Powell’s condition as “Central Bankster Syndrome,” marked by the compulsion to see soaring prices as “temporary” or “transitory” until long after inflation has rampaged through the economy unchecked.
At his December 2020 press conference, Powell pointed to “disinflationary pressures around the globe” and said “it’s not going to be easy to have inflation move up.”
A month later, with inflation on the move well above the Fed’s 2-percent target rate, Powell said it was only “temporary.”
In July, with inflation running at 5 percent, Powell told a Congressional committee that “we really do believe that these things will come down of their own accord as the economy reopens,” he noted.
Treasury secretary Janet Yellin echoed his mistaken view in a 24 October CNN interview, describing high inflation as “temporary” (“Powell, Yellin Agree: Higher Inflation Ahead,” 26 Oct 2021).
While Powell was waiting for inflation to give up and go away, we documented its relentless rise in “Inflation Tsunami Approaching” (4 May 2021), “Inflation Soon to Get Much Worse” (18 May 2021), “Fed Officials Send Mixed Signals on Policy Shift” (29 Jun 2021), “When Will Fed End Cheap Money Policy?” (27 Jul 2021) and in many of our “Market Overview” sections.
TRENDPOST: Jerome Powell is either a dumb economist or a liar. We had long forecast rising inflation. But at his December 2020 press conference, the Fed-Head Powell pointed to “disinflationary pressures around the globe” and said “it’s not going to be easy to have inflation move up.”
A month later, with inflation on the move well above the Fed’s 2-percent target rate, Powell said it was only “temporary.”
In July, with inflation running at 5 percent, Powell told a Congressional committee that “we really do believe that these things will come down of their own accord as the economy reopens,” he noted.
Wrong, wrong, and wrong.
As we noted in “Fed: Stronger Economy, Steady Rates” (23 Mar 2021), Fed officials predicted overall U.S. inflation this year would be 2.4 percent.
Instead, it topped 6 percent in October and has averaged 4.1 percent from January through October.
Until November, Powell and the Fed’s Open Market Committee were referring to inflation as “temporary,” which became “transitory,” a more useful weasel word as what Powell had called “temporary” stretched into its 10th month.
So when we hear Powell declare that the Fed will use all of its tools and “take necessary steps” to vigorously fight inflation, we also notice that he failed to say exactly when that would happen.