Powell Has Spoken
Live at the 2021 Virtual Jackson Hole symposium, Federal Chair Jerome Powell addressed the public. Beginning with a nod to COVID and appreciation for front line workers, he quickly moved to an analysis of the economy:
Booming demand for goods and the strength and speed of the reopening have led to shortages and bottlenecks, leaving the COVID-constrained supply side unable to keep up.
We’ve been hearing about these dreaded bottlenecks for quite some time. Per Powell, these bottlenecks are creating elevated inflation in durable goods. Which is to say, it’s not the money supply or the way inflation is calculated that is to blame. Yet, the Fed has not provided the public with examples of what or where these bottlenecks are occurring, nor explained how this is actually measured.
He moved on to the event’s theme: Macroeconomic Policy in an Uneven Economy, mentioning how:
The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit.
This is nothing new. In fact, every unexpected downturn or recession hits those in the lowest poverty bracket hardest. They pay for the Fed’s intervention, funding corporate bailouts through taxes or currency debasement, while not having access to the new money such as the Fed’s trillion-dollar repo facilities.
Meanwhile, employment is still down. As stated:
Total employment is now 6 million below its February 2020 level, and 5 million of that shortfall is in the still-depressed service sector.
No one should be surprised this sector continues to suffer given the government’s lockdowns coupled with a concerted media effort encouraging everyone to stay indoors.
After noting the state of the economy, he moved to the ominous sub-title line of The Path Ahead: Inflation. According to the chair:
The rapid reopening of the economy has brought a sharp run-up in inflation.
It is actually quite disrespectful, both to the public and the field of economics, when the head of the Fed claims prices are rising due to the high speed of “reopening” the economy. As to the trillions of dollars added to the Fed’s balance sheet, plus other government giveaway programs, and whether these could be contributing to the rise in prices, Powell remained silent.
Powell then touched on the Fed’s future tapering of asset purchases; but there wasn’t anything earth shattering nor any specific dates given. Some media sources are reporting that it is still expected to begin this year. According to CNBC Powell indicated:
…the central bank is likely to begin tapering before the end of the year.
Fedspeak is certainly open to interpretation. Powell then somewhat addressed interest rates:
The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.
Continuing, he says the Fed will:
...hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time.
Clearly, the Fed has no plans to raise rates any time soon. The future tapering will not be indicative of rate raising and rates will only be lifted when the Fed’s dual mandate is achieved to a sufficient degree as measured by the Fed itself.
In his speech, he should’ve at least acknowledged the nearly $28.7 trillion government debt (and counting) but perhaps it’s best that the Fed’s objectives are met first before tackling other issues... such as an exponentially growing national debt.