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Just listened to Powell’s speech again, and it’s filled with very extreme statements and highly questionably assumptions based on distant economic history from the 70s and 80s. Here’s one of his very extreme statements:

“While the lower inflation readings for July are certainly welcome, a single month’s improvement falls far short of what the committee will need to see before we are confident that inflation is moving down.”

This is just a really extreme statement and completely unjustified. Let me give you the actual data for month to month price changes from July CPI report (Source is Econoday.com):

CPI: consensus estimate = 0.2% actual = 0.0%
CPI excluding food & energy prices: consensus estimate = 0.5% actual = 0.3%

That’s a big improvement from June’s numbers. A different measure of inflation, the PCE price index, was even better:

PCE Index: consensus estimate = 0.1% actual = -0.1%
Core PCE Index: consensus estimate = 0.3% actual = 0.1%

These inflation numbers are a big drop from June’s numbers and from the previous 12 months. This is very strong evidence that inflation is at least moving down. To say that this evidence falls “far short of what the committee will need to see before we are confident that inflation is moving down”, is extreme and almost certainly wrong. Inflation is definitely moving down, and dropping at a fairly rapid pace.

Another statement that the US will need a long phase of below-trend growth to bring inflation back down, is just an assumption based on distant economic history from the 70s and 80s. We may not need a long phase of below-trend growth to get inflation under control. We may actually be close to getting inflation back to around 2% right now. Our economy is much more efficient and flexible, much less unionized, and much more energy-efficient than it was back in the 1970s. Back in the 70s, we didn’t have all the big low-cost retailers and manufacturers like Wal-Mart, Costco, Home Depot, Amazon, Target, Intel, AMD, Micron Technology, Cisco Systems, Honda, and Toyota Motors...and we didn’t have the internet back then, which has made businesses much more efficient and has substantially reduced energy consumption in our economy.

The Fed governors have there minds back in the 1970s, and are unaware of how quickly inflation can drop back down to recent low levels, once congress stops this surge of spending in response to the Covid pandemic. The Fed has almost finished its job and another 50 basis point rate hike will likely be enough to control inflation, IF congress stops its spending spree and gets fiscal policy back under reasonable control, and soon. The focus of government should shift now to fiscal policy and brining spending back down from the recent wild surge of big spending. If they can get that done, then the Fed doesn’t need to do much more.

Here’s another strange, extreme statement from Powell in this speech:

“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy.”

This is a strange statement because price stability is not THE “bedrock” of our economy. That’s a statement that a banker makes, not a real business person or a real economist. Please allow me to correct this statement: The bedrock of our economy is he production of high-quality goods and services—the supply of goods and services. The quality of life in America begins right there and all other beneficial outcomes result from production and supply. Production, in turn, is the natural result of wise, well-reasoned government policies based on economic freedom, wise law-making, the rule of law, and reasonable, rational taxation and regulation of economic activity. Price stability then results from strong growth in the production of high-quality goods and services, combined with reasonable monetary policy.

Corrupt government, such as today in Venezuela, is the biggest destroyer of economic growth and prosperity. War also destroys prosperity, and all wars between nations result from corrupt, evil, unreasonable government on one or both sides of the war. Production, resulting from wise government policies and the work and talents of our people, is the bedrock of our economy and the economy of every nation.

Now that we have that cleared up, hopefully someone will mention this truth to the narrow-minded bankers in the Federal Open Market Committee. Another statement Powell makes repeatedly is that price stability is necessary for a strong labor market. I’m not sure what he means by that statement, because we certainly had a strong labor market in the 70s when inflation was well above 2.0%. Employers will hire lots of workers even when prices are rising, as long as they can increase their prices as fast as rising labor costs. Again, he seems to have the cause-and-effect sequence reversed here. Strong production and supply results in price stability (when combined with good monetary policy) and also results in a good labor market that benefits all workers. Employment is the result of strong growth in production.