• March 20, 2023

No Inflation Worries at the Fed

Close by the editorial staff

The editorial office

June 16, 2021 6:42 p.m. ET

Federal Reserve Chairman Jerome Powell speaks during the Federal Open Market Committee press conference June 16.


Federal Reserve

Let’s try one of those multiple choice questions that we all hated on SAT tests. Question: Which of the following does not match the others?

A) 7% GDP growth in 2021.

B) A 5% yoy increase in the consumer price index and 3.8% in core prices excluding food and energy.

C) An unemployment rate of 4.5% by the end of this year, heading towards 3.8% next year.

D) A federal fund interest rate of close to zero for a further two years.

If you answered D, you are not a member of the Federal Reserve Open Market Committee (FOMC), which on Wednesday reiterated its monetary policy with the pedal to the metal despite a booming economy and rising inflation that even the Fed is expecting 3% this year.

Answers A) and C) are the median estimates of 18 Fed governors and regional bank presidents in June, while B) was the actual inflation rate for May. In every previous era, these numbers have been flashing yellow signals that a modest monetary tightening is warranted.

But not under Chairman Jerome Powell, as once again there were no deviants from the policy that began at the height of the pandemic in spring 2020. The only indication of a change is that seven of the Fed’s forecasters predicted a rate hike in 2022. But that is only up to 0.25% (two members) or 0.5% (five). The median estimate does not yet envisage any rate hikes until 2022 and only up to 0.6% in 2023.

Mr Powell acknowledged that the recent rise in inflation has been higher than expected. Given the apparent price hikes in most economies, he had little choice. But he dismissed this at his press conference as a result of “temporary supply effects” that disappear when the “bottlenecks” disappear. Give him stubborn consistency.

The chairman also spoke profusely about unemployment. “We’re going to be in a very strong job market pretty quickly,” he said, which is hard to deny given the record number of 9.3 million vacancies and employers across the country who cannot find work.

All of that optimism is enough to make us wonder whether Mr Powell now believes that the economy can continue to grow without further spending from President Biden. It’s a shame nobody asked.

Wonderland: A crisis may be a terrible thing, but the Manchin clutter and shopping spree show Joe Biden found a way to waste the Covid crisis. Pictures: Everett Collection / Getty Images Composite: Mark Kelly

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Published in the print edition on June 17, 2021.

Source link


Read Previous

Christian Eriksen to have heart-starting device fitted after collapse

Read Next

Denmark’s Christian Eriksen to have heart starter device implanted after on-pitch collapse

Leave a Reply

Your email address will not be published. Required fields are marked *