FEDERAL RESERVE Powell warns of ‘some pain’ ahead as the Fed fights to bring down inflation

CNBC ^ | 8/26/2022 | Jeff Cox

[socialism_stinX]

Federal Reserve Chairman Jerome Powell delivered a stern commitment Friday to halting inflation, warning that he expects the central bank to continue raising interest rates in a way that will cause “some pain” to the U.S. economy.

In his much-anticipated annual policy speech at Jackson Hole, Wyoming, Powell affirmed that the Fed will “use our tools forcefully” to attack inflation that is still running near its highest level in more than 40 years.

Even with a series of four consecutive interest rate increases totaling 2.25 percentage points, Powell said this is “no place to stop or pause” even though benchmark rates are probably around an area considered neither stimulative nor restrictive to growth.

[socialism_stinX]

After this speech today, I think there's now about a 40% probability that we have a recession early next year because of excessively tight monetary policy. The Fed is starting to get too hawkish and appears to misunderstand the US economy and the causes of the recent surge in inflation. Powell seems to think we're in a inflationary era like the 1970s, but our economy today is nothing like the 1970s. There's much more price competition in the US economy today than in the 70s, much more foreign competition today, and our economy is far more efficient in every way than in the 1970s. This recent surge in inflation was not caused mainly by low interest rates, but instead was caused by a huge surge of spending and bond-buying by the Fed in response to the Covid-19 pandemic. All that spending and money-printing was intended to prevent a serious recession and deflation in our economy. That worked and we didn't get a lengthy recession, but instead we've had a surge in inflation. The Fed's initial response to this surge of inflation, when they said inflation was "transitory", is more correct than they think now. They're starting to overdo interest rate hikes and thus the probability of a recession next year is increasing.

I had a friend who was an amateur economist, and he did some research on economic data from the 1970s and 1980s, and concluded that monetary policy was not too loose in the 1970s. He reached that conclusion partly because the velocity of money increased substantially in the 1970s, which indicated that there wasn't too much money sloshing around in the US economy and causing inflation. Instead, other factors were mainly causing inflation. (The velocity of money is appoximately the average total amount of checks written from US checking accounts in a certain length of time, divided by the average balance of checking accounts). I looked at his research and concluded that the main cause of inflation in the 1970s was lack of competition in the US economy and a large number of corporate and union oligopolies dominating the US economy at that time. An oligopoly is domination of a market by a group of corporations or labor unions. The Big 3 automakers was an oligopoly in America in the early 1970s, for example. Oligopolies lead to higher prices, higher profit margins, and lower economic output--in other words, they cause stagflation, and that's what we had in the second half of the 1970s.

The Reagan Administration, aggressive young American companies (such as Wal-Mart, Home Depot, and Target), and Japanese companies (such as Toyota and Honda), did a brilliant job of breaking up the oligopolies of the 1970s and bringing much more price competition and efficiency to the US economy. That's the main reason for the big drop in inflation in the 1980s, along with major corporate and individual tax cuts that provided incentives for cost-reduction investments, education, and greater efficiency in the US economy. Fed policy in the 80s was more of a psychological factor helping to bring down expectations for future inflation.

I think it's about time for Janet Yellen and one of her top economists to have a talk with Powell and explain to him that we're not in the 1970s today, and the Fed is starting to overdo interest rate increases, and the probability of a recession next year is growing. I would say the best move for the Fed right now is to raise rates by another 50 basis points at their next meeting and then pause and monitor economic data. The core PCE inflation last month was only 0.1%, so we're already getting a substantial drop in inflation, and a pause to monitor incoming data this Fall is a good idea.

[Bloody Sam Roberts]

They just don't get it.

Stop printing currency and stop spending it like drunken sailors!

Or, is that the intention to get exactly what they want? It seems too obvious for them to not understand and must be doing it on purpose and damn the consequences.

[Chode]

[Ebenezer]

The spin: “some”. The reality: “excruciating”.

[Sacajaweau]

Please...We’ve been in pain for 18 mos.....since da shut everything down on Day one...he signed about 70 EOs

[butlerweave]

Can this guy count to 20 without taking off his shoes and socks ?

[Paladin2]

2% Inflation is not stopping Inflation.

2% compounds nastily over 40 years.

[Theoria]

Keep it simple. Ya left out one of the biggest factors in the 70’s and now. Energy. Energy was a huge factor in the mid and late 70’s in pushing up inflation, just as the oil glut into the 80’s helped tremendously.

[frogjerk]

Janet Yellen is an idiot.

"Inflation is always and everywhere a monetary phenomenon" - Dr. Milton Friedman

[familyop]

He said that the Federal Reserve’s efforts to control inflation would cause “some pain to households and businesses.” Bankers are wanting increases in money from loans and a larger needy labor pool for some businesses.

There’s also growing discontent with the environment (too many unworthy bodies as perceived by many), which is fueled by increasing drug abuse and incoming hordes from the direction of the Equator—results of policies from many of the same influential political donors in efforts to bring more subservient labor. It’s a vicious cycle produced by those who seek to fix the mess that they made, and many of them are not long descended from countries outside of the USA.

[youngidiot]

The shitbag Biden disaster is worse than people think. These inflation numbers don’t include fuel and food.

[SaxxonWoods]

This will be my 7th recession since I started noticing money and paying attention to it. Every one was needed and led to good opportunities, just like this one will. It’s just barely getting started, patience and longer-term thinking are the keys for now.

If you didn’t hit any doubles, triples or homers during the last boom, your next chance is coming.

[familyop]

One result will be an eventual greater difference in standards of living between private sector labor and government/professional factions. More political strife ahead.

[socialism_stinX]

Inflation has causes on both the demand side and the supply side of the economy. Monetary policy affects the demand side, and hyperinflation can result from very loose monetary policy and heavy money-printing. Lack of supply, resulting from oligopolies, lack of competition, and high tax rates, also causes inflation.

[Captain Peter Blood]

The Recession is here and has been for probably 6 months, it now getting worse and inflation will get worse not better. Congress, instead of slowing spending, has increased it. The Fed us already way behind and real rates should be at least 8% right now. Only an aggressive policy will work and that is just not going to happen.

Powell is talking out of his @@S on this thing to Jawbone the situation. He better have the Balls to go the full court here. And if the Eurasian Block quits using the Dollar as a Reserve Currency then what will happen when all of those Billions o Trillions come back to the U.S.? Can you say Bond Default? Because that is what is coming.

[socialism_stinX]

I made some doubles and triples in some stocks after the Covid selloff, but I didn’t anticipate this huge stock market rally during Biden’s first year. That was a big surprise to me and a lot of other investors.

[mewzilla]

Powell’s speech delivers tough lesson to markets: ‘Don’t fight the Fed’

Behind a wall, but I'm posting the link for the headline.

Anyone else think that's a threat...?

[familyop]

True. Oil went up in ‘73, if I remember correctly. Everything else went up after that. During the later 1970s and 1980s, much of our manufacturing was shut down on our soil and resumed in other countries. Hordes from third world countries were sucked into the US to enlarge the labor pool. Anti-family policies were implemented. Policies on narcotics have been gradually relaxed.

And we see the results (the societal and infrastructure rot, the crowding with vastly different cultures and resulting balkanization,...) all around us. Various kinds of tensions are ratcheted up against people trying to get established with moderate standards of living.

Increasing homelessness is one of the results of the policies. In the late 1970s, men at work uttered predictions of a third world future for the USA, and we’re seeing more of a transition to a hardened oligarchy now.

[politicket]

I think there's now about a 40% probability that we have a recession early next year

We're in a recession right now...

[jimwatx]

Unlike Volker, Powell won’t be able to raise rates sufficiently to bring down inflation because the $30 trillion in debt makes it untenable. There may be a temporary pause as we head into recession and Powell starts to unload the Fed’s balance sheet, but I see inflation continuing for years to come.