Send this article to a friend: August |
Fed Chair Jerome Powell Pledges to "Act With Resolve" to Beat Inflation Markets are reeling in response to a hawkish speech by Powell at the Jackson Hole conference. In Jackson Hole, Wyoming, Fed Chair Jerome Powell gave a hawkish speech today on Monetary Policy and Price Stability. Key Highlights
Inflation Expectations Nonsense Powell also gave praise to Ben Bernanke and totally disproved economic theory regarding inflation expectations.
Inflation Expectations are Crashing. So What? It Doesn't Matter. Inflation expectations are a ridiculous concept. Two independent Fed research papers accurately make that conclusion. Fed studies also debunked the widely believe Phillips Curve. Powell's comments are theoretically nonsense and actual Fed studies prove it. On August 8, I commented Inflation Expectations are Crashing. So What? It Doesn't Matter. Please consider Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) by the Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board. Here are a few direct quotes. The last bullet point is the most important one.
Fed Studies Debunk the Phillips Curve
Both studies were done by Fed staffers. Yet, Fed Chairs Janet Yellen and Jerome Powell did not believe the Fed's own study. If Inflation Expectations Mattered If inflation expectations mattered, the above chart would not exist. Let that sink in. From 2013 to 2021 inflation expectations averaged well over three percent. Even with the Fed pumping hard with QE, the Fed could not get measured inflation over two percent! How pathetic is that? It's not really lack of inflation of course, but rather how senseless economists view it. Factoring in home prices and asset bubbles there was massive inflation, just not where clueless economists wanted it. Also consider A Fed Economist Concludes the Widely Believed Inflations Expectations Theory is Nonsense. Here are some excerpts from the actual study:
One should not need a study to prove the obvious. And it's obvious that inflation expectation theory is nonsensical. The reason has to do with the way inflation is calculated. What Can the Fed Do About the Price of Food, Medicine, Gasoline, or Rent? On March 20, I asked What Can the Fed Do About the Price of Food, Medicine, Gasoline, or Rent? What the Fed Can and Cannot Do
Elastic vs Inelastic Demand
This is why inflation Expectations theory the Fed abides by is total nonsense. People will not rent two homes if they perceive prices will rise. Nor will people stop paying rent and wait for declines in they believe prices will fall. The same applies to buying food, gas etc. Stupidity Well Anchored: Absurdity of Inflation Expectations in Graphic Form I discussed the silliness of inflations expectations theory in Stupidity Well Anchored: Absurdity of Inflation Expectations in Graphic Form Asset Irony People will rush to buy stocks in a bubble if they think prices will rise. They will hold off buying stocks if they expect prices will go down. People will buy houses to rent or fix up if they think home prices will rise. They will hold off housing speculation if they expect prices will drop. The very things where expectations do matter are the very things the Fed ignores. Demand destruction will occur in the small subset of elastic items plus housing and stocks. Except as related to recreation and eating out, rate hikes will not impact food, energy, or shelter, the overwhelming majority of the CPI. Stupidity Still Well Anchored Here we are with Powell, Barkin and other Fed presidents putting a spotlight on expectations, having ignored the third massive stock market bubble in just over 20 years. Meanwhile, "there can be little doubt that poor people…are the chief sufferers of inflation." Asset Irony People will rush to buy stocks in a bubble if they think prices will rise. They will hold off buying stocks if they expect prices will go down. People will buy houses to rent or fix up if they think home prices will rise. They will hold off housing speculation if they expect prices will drop. The very things where expectations do matter are the very things the Fed ignores. Demand destruction will occur in the small subset of elastic items plus housing and stocks. Except as related to recreation and eating out, rate hikes will not impact food, energy, or shelter, the overwhelming majority of the CPI. It seems crazy that economists cannot see the obvious, even when its pointed out repeatedly. The reason is as noted above: "It is far, far better and much safer to have a firm anchor in nonsense than to put out on the troubled seas of thought. John Kenneth Galbraith (1958)." One Agreement With Powell I do have one key agreement with Powell, stressed repeatedly over the past six months. On August 19, I repeated my message from earlier this year: Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession Powell is in agreement "Reducing inflation is likely to require a sustained period of below-trend growth." Yep, and it's started. We are likely in recession now, but label it however you like. This post originated at MishTalk.Com. Thanks for Tuning In! Please Subscribe to MishTalk Email Alerts. Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time. If you have subscribed and do not get email alerts, please check your spam folder. Mish
|
Send this article to a friend: