Powell Uses 1970s Inflation Spiral to Show How “Temporary” Becomes Persistent, as Fed’s Lowball Inflation Measure “Core PCE” Jumps Most since 1991

His “taper” discussion — tapering starts this year — got all the attention, but his focus was on inflation.

By Wolf Richter for WOLF STREET.

The Fed bases its 2% inflation target on the “core PCE” (Personal Consumption Expenditures) price index, the lowest lowball inflation measure in the US, other than inflation measures that remove the big movers and just focus on items that don’t move, such as trimmed mean inflation measures. PCE and core PCE inflation measures are nearly always below CPI (Consumer Price Index) and core CPI.

“Core PCE,” which excludes food and energy that can be volatile, but which people spend a lot of money on, rose by 0.34% in July from June, and by 3.62% year-over-year (up from 3.58% increase in June), for the largest year-over-year increase since 1991, according to the Bureau of Economic Analysis today.

The headline PCE price index, which includes food and energy — such as the spike in gasoline prices in 2008 — jumped by 0.41% for the month and by 4.17% year-over-year, the biggest year-over-year jump since 1991, having squeaked past the 2008 peak of 4.14%:

By now it is clear to everyone at the Fed, even Fed Chair Jerome Powell, that inflation has arrived in a massive manner not seen in decades, even while the Fed is still stimulating inflation with its interest rate repression and $120 billion of QE a month, and even while the $5 trillion of government deficit spending over the past 17 months are still flooding the economy.

The only question now is how much of this inflation is “temporary” – surely, some of it is – and how much of it is persistent and how much new inflation can come along.

Powell, in his virtual Jackson Hole speech today was all over inflation. He mentioned it 71 times in the written speech (not including the references). He pointed out why inflation has spiked so enormously in durable goods: a historic spike in stimulus-fueled demand that no one was ready for.

And some of those price spikes, such as the ridiculous price spikes in used vehicles, are surely in part temporary because these prices are just too outlandish to persist. And when those prices tick down, they pull down the inflation index. But those price spikes will unwind only partially, depending on how aggressively “hedonic quality adjustments” are being applied going forward.

Meanwhile, even as used vehicle prices might begin to tick down, along with some other prices, new vehicle prices and numerous other prices have started to take off, particularly in services, which are roughly two-thirds of consumer spending and include housing.

These shifting price increases and decreases make inflation readings very volatile, and just when you thought inflation would finally fade, there comes another surge.

Powell alluded to that. He sees this inflation spike “moderating in higher-inflation items.” But he referred back to the 1970s, when two oil shocks caused spikes in inflation that then spread to other items and became entrenched and persistent and self-propagating, even after the oil shocks had dissipated.

“History also teaches, however, that central banks cannot take for granted that inflation due to transitory factors will fade. The 1970s saw two periods in which there were large increases in energy and food prices, raising headline inflation for a time,” he said.

“But when the direct effects on headline inflation eased, core inflation continued to run persistently higher than before,” he said.

“One likely contributing factor was that the public had come to generally expect higher inflation – one reason why we now monitor inflation expectations so carefully,” he said.

The inflation spiral in the 1970s took nearly a decade before it finally turned the corner, after hitting 14.5% as the economy was getting hit with mega-rate hikes to get inflation under control.

In between, there were many moments when inflation was thought to have peaked, and when inflation backed off, only to spike again and more so than before. But back then, interest rates were much higher than today, and there was no QE.

Now the Fed is still printing $120 billion a month, which is totally crazy given this amount of inflation, though it will taper those purchases starting this year, as Powell confirmed, and down to nothing by some time next year; and it is still repressing interest rates, with short-term rates near zero. This combo of massive QE, repressed interest rates, huge government stimulus, and raging inflation is new in recent history.

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

Many experts agree that metal roofs are a great defense against wildfires. Click here or call 1-800-543-8938 for details from our sponsor, the Classic Metal Roofing folks.

Classic Metal Roofing Systems, the leader in fire safe roofing for residential applications, manufactures products that are 1/20 the weight of most tile products and eligible for Class A, B, or C fire ratings as determined by roof preparation.

  101 comments for “Powell Uses 1970s Inflation Spiral to Show How “Temporary” Becomes Persistent, as Fed’s Lowball Inflation Measure “Core PCE” Jumps Most since 1991

  1. jon says:

    Here is the gist of Powell Speech from what I understand:

    No matter what we’d keep supporting the assets of all kinds to help the rich people.

    • Joe Fury says:

      Giving the wealthy more money, will promote the Trickle Down Effect . .
      Giving them “more” just means they can piss on the poor, from a greater height, ah, a Golden Shower .

      • Eugene says:

        Only 1% of rich will survive the coming depression.,most connected.The rest will be taxed to the maximum.The society must finished this cycle of socializm with a collapse.

    • Depth Charge says:

      Yes. And, “we might taper at some point in the future, but until then we’re going to continue destroying the lives of the masses to enrich our buddies.”

    • RH says:

      The banksters’ privately owned, “Federal” Reserve is about to face the truth of the saying: “..you can’t fool all of the people all of the time.” I am just shocked that it took this long.

    • historicus says:

      The difference between the 1970s and now…

      in the 70s we had a Fed that FOUGHT inflation

      now we have a Fed that PROMOTES inflation

  2. MonkeyBusiness says:

    “He pointed out why inflation has spiked so enormously in durable goods: a historic spike in stimulus-fueled demand that no one was ready for.”

    Amazing stuff. What did he think would happen when he printed all that money?

    Powell is a closet Magic Money Tree guy.

    • Djreef says:

      It’s actually sad that so many of these Ivy League PHDs would fail ECON: 101 today.

      • MonkeyBusiness says:

        Well Powell only has a Masters Degree. Perhaps that’s the problem!!!

        • Joe Saba says:

          as usual it is WHO YOU KNOW(snob snob yale like)

          not fact you know NOTHING

      • Poor like you says:

        Failure implies this outcome isn’t exactly what they intended

        • MonkeyBusiness says:

          Disagree. This is exactly the outcome they wanted. The rich getting richer. They have been wildly successful. And because one good turn deserves another, Powell will press harder on that pedal of his.

        • Brant Lee says:

          Who failed? I think it’s all working out to the elite’s advantage which is what the fed has been striving for the last twenty years. Stocks finished up again today in this crazy atmosphere.

          I suppose we can watch Powell and everyone in government act surprised at all this and we can believe it. Meanwhile, they have all gotten dirty rich swimming in money and property. Sure, they just don’t know what to do with inflation (oh my goodness) even though they caused it and are glad for it and it certainly continually benefits them and buddies.

      • Don says:

        According to Wikipedia, Powell is a lawyer with an undergraduate degree in Political Science. He probably never took Econ 101.

        • Anthony A. says:

          He’s the perfect guy for that job. Can’t be blamed as he is just the messenger. Those 400 PhD’s in the FED should have known better.

        • COWG says:

          But he did take a class in Santeria and reading chicken entrails…

          I watched this guy today for 5 minutes and then went to play with my Walter Mitty and Caspar Milquetoast action hero figures…

          I thought it was quite amusing when he said he was concerned for the “ public we serve”.

          I thought at the time “ Did he really say that?”…

          Yes, he actually did…

        • Depth Charge says:

          “I thought it was quite amusing when he said he was concerned for the “ public we serve”.”

          Don’t pay attention to what he says, pay attention to what he is doing. He’s STILL unleashing $120 BILLION per month in QE. If this clown was concerned about inflation, he would have announced an immediate halt to QE and imminent interest rate increases. This guy is so full of sheet his eyes are turning brown. Taper my asz.

      • Cobalt Programmer says:

        Most of the Ivy league graduates similar to him are born and brought up in a rich home in a richer zipcode. They got special coaching, prep schools and fraternity in the colleges. They never went shopping in a local walmart or deals in the stores. They dont even drive but fly to the meetings. Their vacation is not in six flags or motel 6. Their policies are flawed because they never experienced the life of an average person.

        • Lisa says:

          This is so depressing

        • Depth Charge says:

          That’s why they’re called ivory tower hacks – they are completely insulated and detached from the real world. Remember when Georgie Shrub #2 was taken aback by a reporter asking him about the $5 per gallon gas prices? He had no clue. These people don’t fill up their cars. They don’t shop for their own groceries. Powell is worth over a hundred million. Do you think he cares about the little people? Bahahahaha!!!!

      • Ian says:

        That depends on who is setting the paper.

    • Michael Gorback says:

      Powell didn’t do the MMT. That money came from the Treasury through acts of Congress. Some states also kicked in money from pandemic relief funds.

      I think the direct stimulus shows the potency of MMT. The stimulus checks and extra unemployment benefits were spit in the ocean compared to QE but had enormous effect.

      You can print money but you can’t print wealth. Actually it seems you print poverty in the form of price inflation if supply is inadequate. That’s where we are now.

    • Wolf Richter says:

      It seems to me that he finally read WOLF STREET :-]

      • MCH says:

        Oh no, does that mean Powell will get rational and start hiking rates to save us all?

        Dear JP,

        If you are reading this, I would like $1 billion in cash… cue Dr Evil laugh… then looks at the national debt and ups the number, make that $1T in cash…. Continues Dr Evil laugh.

    • Sierra7 says:

      Monkey Business:
      Powell and the FED are not responsible for the legislation that spewed all the “stimmie” money. The FED just followed thru what the legislators wanted.

    • Bejezzus Bojangles says:

      Over the 20 years I’ve lived in the US I’ve never seen anyone treat my hard earned money with less respect than the US government. It is like being the co-signer on a credit card for a fiscally irresponsible 15 year old. Except the terms are better on the credit card. And at least the bank will answer the phone when they think you owe them money.

  3. Poor like you says:

    What’s left to say at this point? I think we’re all just waiting for the bottom to fall out of this worm-eaten economy.

  4. We’re on the dollar economy now, and rolling over much higher levels of debt. They caught a flyer, it took fifty years for monetary inflation to take hold, offset by outsourcing labor to the third world. Time for a new rabbit and a new hat, but it might end up like that skit where magician Bullwinkle reaches in the hat and pulls out a lion. Call it Crypto.

  5. historicus says:

    Just remarkable.
    Powell apparently is trying to pump up his speaking fees (delayed compensations)
    First, PCE is a chain weighted index that allows the substitution OUT of items that rise too much in price. Talk about bias.
    Second, how can a 5% YOY inflation spike be ignored by a body that is charged with stable prices? Even if we flatten out, the 5% sticks.
    Finally, rate of change charts hide the COMPOUNDING and AGGREGATION of inflation. A flat rate of change chart at say 2.5% would suggest nothing is happening. Horizontal line. But a 2.5% inflation rips 28% off the dollar in ten years.
    What is going on with this Fed is breaking with the financial history of this nation. For 7 decades, Fed Funds equaled or exceeded inflation. The wisdom was to protect the holders of the national currency and to tamp down inflation. Now, crickets.
    And now, people are denied the mundane but effective course of saving ones money to get on your financial feet. Now, and intentionally, savers are PUNISHED for doing so…for being prudent and economical.
    The Upper Class is pulling up the ladder that once connected it to the Lower Class. Cant save. Inflation biting into earnings and ramping up prices. Home ownership becomes too expensive. Not good for a society.

    • RightNYer says:

      Depth Charge said it best. None of this will end until people show up in Washington with AR-15s (the modern equivalent of pitchforks).

      • MonkeyBusiness says:

        No one will show up until the Professional Managerial Comfortable class gets impacted, and that’s still a LOOOONG while.

        Heck, at this point, we might need China’s help in crashing this economy. Keep raising them prices, China!!

        • Anthony A. says:

          And keep making stuff that breaks due to poor quality so we can buy more!

        • RightNYer says:

          The professional managerial comfortable class aren’t the ones with weapons, survival skills, technical know how, and military experience.

        • MonkeyBusiness says:

          @RightNYer, they have something better than those …. Hope.

          False Hope, but muppets love that more than anything.

        • Ron says:

          How about s Korea there appliances are junk Samsung washer dryer and refrigerators will never buy again speed queen made in U S A

        • Mojer says:

          @Ron

          They are now produced in Myanmar

      • MCH says:

        What are you, an insurrectionist? That’s against the law… someone will have you know.

      • Trucker guy says:

        Lol as if. The same people running around in armor vests, camo, and layaway financed rifles are the same ones saluting beat cops and wanting a “strong man” authoritarian cult of personality running everything from top to bottom. You’re not going to see the fox news crowd taking on the government when they have thin blue line American flags flapping behind their f-150s. Unfortunately the very few people that I do have to interact in real life with are all cut of this cloth. And they’re all the same. Real quick to talk about how they’ll fight tyranny or some dumb shit but the second they even have so much as catch an inkling someone is doing something against some obscure law they’ll call the cops or whatever authorities. I’ve had one tell me he’d call the dot and tell them I was hauling a load with twisted straps which isn’t even illegal because I wouldn’t strap something the way he wanted it. The ar-15 crowd are bootlickers through and through. Don’t count on them to do anything but worship right wing celebrities and try and act tough. They’re a bunch of fools.

        The only rebellion to occur will be when average people are in the streets starving. It’s not going to be because the fed reserve and politicians screwed the youngins out of home ownership and further shrunk real wage growth. It won’t happen while people still have their new cars, iphones, and McDonald’s. The middle class still has a lot of people to be knocked down yet. The poor have a lot of weight to lose as well.

    • 91B20 1stCav (AUS) says:

      Right-and from a few years of reading opinions here on Wolf’s most-excellent site about the general ‘Murican public, neither does that general public, though they like to kid themselves that they do…

      may we all find a better day.

  6. Raging Texan says:

    Wolf, the inflation graphs here are the first derivative of prices, would love to also see the 2nd derivative graphs, called sometimes called “jerk” in physics.

    • Alku says:

      the latest part of the inflation graph looks hardly a differentiable function :)

    • Yort says:

      I’m guessing J-Pow was “Jerking” himself and all us on his zoom conference today as he attempted to not laugh at his speech titled “Macroeconomic Policy In (CAUSING) An UNEVEN Economy”…

      Powell previously said he was meeting with homeless people, you know the ones he helped put on the streets with policies that benefit the top 1% mostly. For example, fast food where I have a place in Texas now is full of homeless people attempting to get free $6 burgers that had been $4.50 burgers two years ago. And the fast food starting pay has went from $12/hr to $16/hr at some burger joints here.

      Basically…everywhere I go, no matter what state, city, or street… I see our village idiot Fed’s bloody fingerprints on the social and fiscal fabric of our society that is extremely prone to cause a lot of social and fiscal instability for many, many years…if not decades. Ironic the Fed says the destructive uneven recovery is a necessary evil in order to create minimum wage jobs that do not even provide a living wage at even $16/hour. It is as if the Fed is trying to enslave the bottom 50-80% of the population as wage/debt slaves for the top 1% corporate masters. And similar to the historically darks ages of unelected Kings, land barons, dictators, etc…the Fed has now acquired more destructive control and power than all of them combined at this point in time, and yet gets featured as a hero on the front page of Time magazine and he destroy the very fabric or society…LOL

      • georgist says:

        How do you increase GDP? You force people to work. How do you force people to work? Detach land prices from wages.

  7. Jay says:

    If my numbers are correct, 1973 tax revenue was $231B while net interest payments were ~ $200M. In 2019, US tax revenue was $3.71T while net interest expense was $574B. So our interest exp to revenue ratio has skyrocketed from .08% to 17%. But the scary part is when you look at the graph, that $200M grew four fold by the end of the 70s. Will , interest rates skyrocket again? I don’t know, but a net interest expense of $1.2T in 2030 certainly seems likely.

    The biggest single threat to our economy is Joe Biden raising taxes on the wealthy, having the Trump tax cuts end after 2025 and then president elect in 2028 having to stare down the barrel of another tax increase to shore up social security. The great recession moved the SS trust fund’s insolvency up by four years. COVID is most assuredly going to accelerate this date by upwards of 6 years. So now, the clock ticks forward from the current 2034 to 2028 just in time for the mother of all financial collapses. And, oh BTW 2028 is the current year China’s economy is expected to pass ours.

    • Antwan says:

      You must be off by a factor of 100. If interest rates in 1973 were 5%, then the $400B or so of national debt would have had an interest expense of roughly $20B. A $200M figure would imply an impossibly low national of debt of several billion.

    • Bobber says:

      So you believe the trickle down theory? Yikes.

    • Jay says:

      You are correct. I believe the net interest on our debt in 1973 was ~ $2B which puts the ratio closer to .8% which is still means it’s grown by a factor of 21 times. And that’s with very mild interest rates over the last 10 years compared to what happened from 1973 to 1981 when Volcker’s policies raised Treasury yields to upwards of 16%.

  8. Yort says:

    Wolf stated that inflation prices are “ricocheting” in a previous article. That is a very clever term, if you think about how dangerous “ricocheting” is in terms of harmful unintended effects and complete unpredictability.

    For example, as a kid, I once shot a concrete block with a large caliber handgun, and the corner of the block cracked, spun, and shot back at a complete 180 degree angle and thus whizzed past my head only a few inches away (would have been fatal, due to unintended effects in which I was simply not wise enough to comprehend and/or predict).

    Point being, the Fed is playing a “game” in which there are near infinite variables in which 7 billion soul’s survival are dependent on numerous levels across the entire globe in ways in which is impossible for any individual or group of humans to comprehend and/or predict. The irony is the high odds this entire fiscal and monetary experiment is a complete zero sum game on a macro scale, so I would ask the Fed if I could the question “What is the point of no return???”

    • Alku says:

      There is no point in asking – they have no idea. Like you said, it’s too complex to predict let alone manage.

      But I would guess we are past this point already. No need for pitchforks, just give it a little more time to blow up on it’s own.

  9. Marco says:

    Despite all the Commentators , including chat here.., Powell is obviously not feeling pressure to reduce the taper , it goes in and on ..,

    • Petunia says:

      The stock market isn’t the only thing that’s disconnected from the real economy. It’s the political class too.

    • Yort says:

      The Fed will not even listen to his own members, so what we seem to have right now is a Fed Dictatorship (Emphasis on “Dic”)…per CNBC:

      Patrick Harker, the president of the Philadelphia Fed, said as much Friday in a CNBC interview that aired just before Powell gave his pivotal Jackson Hole symposium speech.

      The Fed not only has achieved the inflation part of its mandate by keeping the level at well above 2% for a period of time, but it also faces the challenge that those price pressures don’t seem to be fading, Harker said.

      “There’s also some evidence that they may not be so transitory, and that’s a risk I’m worried about,” the central bank official said in an interview about two hours before Powell’s speech.

  10. Catxman says:

    This would all please Keynes mightily.

    That economist was the advocate of taking money and burying it in the earth and having people dig it up, just to give them something to do and flood the markets would fresh currency. Well, we’ve taken away the shovel and given them “free” QE and we shall see how this leetle experiment runs its course.

    • Old School says:

      I just saw the battional commander just got relieved of duty speaking the truth about the incompetence he saw in the higher ups that got his buddies killed

      Same at the Fed. Druckenmiller, Summers and about a dozen more calling out the Fed and congress for printing and spending like drunken sailors. The elite are too far from on the ground reality to make good judgements.

  11. DWatcher says:

    The 7 year itch over the past 48 years. Hmmmmmm…

    2022 — ???

    2015 —
    In 2015 the U.S. economy was so slow that several historically-reliable indicators of an imminent recession were waiving red flags. Industrial Production was negative over 12 months, and retail sales growth was falling. The global economy was even weaker. By early 2016, global stock markets were falling hard. Feb 24, 2020 ~~ Forbes

    2008 —
    It was among the five worst financial crises the world had experienced and led to a loss of more than $2 trillion from the global economy. ~~Wikipedia

    2001 —
    The 2001 recession was an eight-month economic downturn that began in March and lasted through November. 1 While the economy recovered in the fourth quarter of that year, the impact lingered and the national unemployment continued to climb, reaching 6% in June 2003. ~~ The Balance

    1987 —
    Black Monday. Worldwide losses were estimated at US$1.71 trillion. The severity of the crash sparked fears of extended economic instability … ~~ Wikipedia

    1980 —
    The recession which occurred in the early 1980’s [1980-1982]was the most severe and the most significant in terms of economic policy of the post-World War II … ~~ SJSU

    1973 —
    GDP growth rate dropped from 7.2% to -2.1% in 1973. Real GDP level fell 3.2%. The inflation rate ranged from 2.94% to 3.61% in 1972. In January of 1973 the inflation rate was 3.61 but increased dramatically throughout the year, to 6.8% in the Third Quarter, and to a high of 8.71% in November.

    • Wisdom Seeker says:

      DWatcher you’re on to something, but now you want to lay out the timing of those economic crises relative to the presidential cycle. It’s not a 7 year itch it’s more-or-less 8 years: The weak spots typically show up near the end of a 2nd presidential term and are frequently a catalyst for a change in party control of the White House.

      1973 looks strangely off-cycle until you remember that Nixon resigned a year later.

      The next question is, why does it work that way?

      • David Hall says:

        Nixon’s VP Spirow Agnew was convicted of bribery. Nixon appointed Gerald Ford as VP. Nixon resigned. Ford pardoned Nixon. Inflation must have been a worry. Ford had a WIN campaign. W.I.N. stood for Whip Inflation Now. I was high school age reading the Washington Post and watching the evening news.

      • Dys says:

        Ask Google “WTF happened in 1971”.

        One of the predominate drivers, in my mind, is the entrance of women into the labor pool en masse. According to the Our World In Data spreadsheet I have up the ~+1.7% decade-decade (1890-1960) trend is broken, which is in line with Civil Rights movements. You hit a cute little dip circa 1963, and then the rates are consistently up YoY. When you consider the population is growing alongside that, from some roughshod calculations, you’re effectively doubling the the number female individuals from 1960-2016. This is not met with a proportional decrease in Male participation, though it has been declining. Somehow, there was an injection of (less than: the population number is derived from total population divided by two) ~39mm people into the labor force (1960-2016) without the subsequent decline employment. It’s here I’d indicate D. Graeber’s thesis of “Bullshit Jobs” and invoke the Orwellian (paraphrase) “We, the top eschelon, force you to labor to inundate your thinking with drudgery.” Which seems to align with the civil unrest around that decade, and particularly Vietnam, assuming Chomsky is correct about business and military strategy.

        All this while automation and offshoring began taking hold (or so I’m told, I’m a baby). We also dropped the Bretton-Woods system in ’71 and then there’s the oil crises Wolf mentioned.

        But there’s a huge confluence of factors that seem to originate in 1971, so that could ultimately be a drop in the bucket.

        • 91B20 1stCav (AUS) says:

          Dys-gold star on your paper, more simply put-expanded labor supply was made available for sundry reasons, thus (doing the arithmetic), the value of labor in general was reduced. Any real blowback from the working population was diluted with the strong advent of easy revolving credit (or, as the Brits say, the ‘never-never’ plan-never paid off/never owned…).

          may we all find a better day.

  12. Tony says:

    Maybe they can make an inflation passport. You go to a bar, restaurant, store, theater, concert, sports event, whatever etc. and you show them your pass by mobile device or paper and they give you a government regulated price.

    Oh wait, they tried that in socialist countries. It did not work. Powell, Yellen, Bernake, Greenspan and the US Federal Reserve controls inflation like I control my pizza eating habit. Lets get real, anytime the overreach of government and it’s policy partners locally, regionally, nationally, internationally get involved, it all goes to crap.

    This is with money, health, economy, fiscal issues and many other issues.

    • Wolf Richter says:

      Tony,

      I know you were kind of joking, but this is already the case in Ecommerce.

      When you go to Amazon, you see different prices than when I go to Amazon. And these prices change, depending on whether or not I cleared the browsing history in my browser and what I looked at before. Your browser is your passport, and the data hogs out there know what to do with it.

      • Yossi says:

        Just so you know, they also target ads and shopping experiences by your IP (and of course geographical location).

        In case your wife is looking for a sofa in her Mac, they know you have a Mac in your household and that your IP searched for a sofa. You could get ads for a sofa on your mobile device.

        If you want privacy, you have to delete all cookies from all of the electronics to that particular site (and 3rd party services it has).
        If any of the websites have any logged users to a specific service, they can have all of that data retained (history, devices, etc.. )

        (Not mentioning GDPR which is a different story)

  13. Keepcalmeverythingisfine says:

    I have to admit, I was worried going into this fed meeting. But, it was mostly a nothingburger, except for the part about letting inflation rip. Jokes on me this time, so I made less than I otherwise would have today, which is still very good. I should have paid more attention to the contrarian que from Bullard. We still have uncertainties in the middle east and uncertainties in the pandemic, and who knows what Biden blunders are coming, so September still looks to be the typical volatility month.

    • Auldyin says:

      @Kc
      I think it was A.Greenspan who said, “If you understood what I said, you must have misunderstood me”
      Standard Fed operating procedure passed on to all Chairmen and women.
      Rates can’t go up, the deficits will continue to be massive for ever, QE will be used to fund them, Ergo F*** inflation it’s ‘fake news’.
      That’s what I thought he said, or did I misunderstand him?

  14. Timothy J McLean says:

    I think Jay and most of the other Fed members are severely underestimating the inflation in energy prices. As Wolf has pointed out, the ESG movement will have unintended consequences. One is the less money big oil invests in new exploration, the less oil we will have and the prices at the pump will increase.

  15. Tbv3 says:

    In August 2020 the Fed said:

    “the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”

    Here are Core PCE per annum growth rates to date:

    1 year Core PCE = 3.62 %
    2 year Core PCE = 2.45 %
    3 year Core PCE = 2.21 %
    4 year Core PCE = 2.19 %
    5 year Core PCE = 2.07 %
    6 year Core PCE = 1.99 %
    7 year Core PCE = 1.87 %

    Since Jan 2012: 1.63 %
    Since Jan 2000: 1.74 %

    The Fed has never said exactly how long their definition of “some time” is.

    But a six-year span of hitting their intended target apparently isn’t long enough.

    • LifeSupportSystem4aVote says:

      “The Fed has never said exactly how long their definition of “some time” is.”

      Pick a number, any number. Now multiply that by 3 and add infinity. That is how long.

  16. Yort says:

    I seen today that Amazon is busy being as creative as ever in the pursuit to further the inflation mania. Just today they announced their “Rent to Own” option on Amazon. I doubt the Fed has a variable in their master equation that takes a new Amazon “Rent to Own” as an inflation driver in America…

    So when “rent to own” first derivative credit cards are not enough, lets create “rent to own” second derivative payment schemes in which first derivative credit cards schemes can be used to pay off said secondary “rent to own” schemes. I can’t wait to “rent to own” my groceries said nobody…

    At some point, if one wants to opt out of the American consumerism/materialism cult and not be a cog in the corporate America wheel if inequality, one will have to live on another planet like the billionaire class is attempting…HA

    Per CNBC:

    Amazon partners with Affirm to roll out first buy now, pay later option on the e-commerce site

  17. Eastern Bunny says:

    According to Powell projections from 5 months ago, inflation should be 2.3% now.
    Currency inflation is above 5% and we still keep listening to his gibberish.
    He has no clue, the collapse will happen gradually and then suddenly, just like Afghanistan.

  18. Charlie says:

    Wolf, maybe you can start tracking the number of times Powell says “inflation” in his speeches like you did several years ago on different words?
    That might make another WTF chart …

  19. NJB says:

    I think that Mr Powell’s desire to get reappointed impacted the key message he delivered ie slow taper and no rush to increase rates. One this is out of the way, he may get more hawkish. As Wolf mentioned, he seems to be more concerned about inflation and hopefully this sets the scene for monetary policy normalisation.

    On a related topic, I get really annoyed when commentators and journalists talk incessantly about the taper tantrum. The Economist and Bloomberg do this a lot. It’s time to refer to this period as the “healthy market correction”. The mindset that asset prices should always go up needs to change.

    • Painted Pony says:

      Infuriating listening to that phony read off a teleprompter. The only job of the fed is to control inflation and unemployment, failing at both…

  20. Jacob Hunt says:

    I am sooo happy right now.
    Personally, since covid hit and commodities exploded I’ve gone from a landscaper who would be working till I was 65, to believing I’ll be financially independent in a few years. But this meeting felt really important.
    The put up or shut up meeting! Powell hardly mentioned tapering, and I think the market will see that the fed will not react to inflation until it’s too late.
    The shackles might just have been released from gold and silver???

    • Wolf Richter says:

      Jacob Hunt,

      He said tapering will start this year. There isn’t much else left to say. Exactly when and how fast will be decided by the FOMC.

      • Jacob Hunt says:

        Yeah wolf, it’s like a classic Aussie movie called the castle. A shitty lawyer is trying to sum up his case, and he keeps mumbling stuff, then just finishes with… it’s just the vibe of it your honor!
        I woke up this morning and looked straight at the gold price hoping for $1820. It was $1818, and I was pretty sure of how it went before reading a word. I might be wrong, but I think the market got the vibe of it.

  21. makruger says:

    I recently read that in spite of increased oil prices over the last year, energy companies apparently have not increased spending to bring any additional capacity online. This could result in further increases in oil prices as capacity becomes constrained and inventories decline, possibly resulting in an oil shock of sorts. Perhaps this is intentional on the part of the energy companies. Naturally such things would further contribute to inflation.

  22. DR DOOM says:

    9% Inflation is baked in the cake. The exchange equation and its relationship to inflation renders this due to what has already happened . It ain’t got jack to do with what’s in the future. Inflation is always and everywhere a monetary event. The monetary event has already happened and is continuing. Milton Friedman teaches this. Powell knows this and he also knows what happens if he does anything but jaw bone and nibble at MBS. He might be hoping this will all go away somehow if he buys more time . Hoping for a miracle might be a shaky way to get ahead of inflation.

    • Dm says:

      We are already at 8% today. But only if you measure CPI the way it was measured in the 1970s. At least we should to make it an Apples to Apples comparison.

    • Nick Kelly says:

      Some is literally coming in the cake and the loaf and pasta etc. because the grains harvest is in and at least on the Canadian prairies it was very bad.

  23. SocalJim says:

    And,

    Gallup: 60% of U.S. Adults Say Economy is ‘Getting Worse’

    If true, rates will be going lower.

    • MCH says:

      No……. I have a bunch of cash sitting on the sidelines waiting for the inevitable rate increase to 20%, so I can buy a bunch of treasury to live out the rest of my life knowing that the US government will pay me to do nothing…

      Oh wait…. They are already doing that…. CRAP. Miss the boat again.

      😭

    • Mojer says:

      It will be inevitable because it is the poor who buy the majority of the goods being a far greater number than the few hundred thousands of the rich, and if the poor have no more money what will happen?

    • MonkeyBusiness says:

      Don’t know about rates. But when it comes to US Adults, they only know how to consume.
      Economy getting worse? They consume.
      Confidence at zero? They consume. Heck if confidence gets to -100, they’ll still consume.

      Who cares about what they think really. The Fed doesn’t. The banks certainly don’t either. They know their muppets well ;)

    • Wolf Richter says:

      SocalJim,

      Americans have no idea about the “economy.” No one really does. It’s an abstract thing. What even is the “economy” as long as I have a job? But they are frazzled by inflation. All consumer surveys have shown that.

      That means inflation is turning into a political bitch, and the White House is going to beg the Fed to raise rates to tamp down on inflation pronto.

      • MonkeyBusiness says:

        After months of keeping options open, Yellen has now come out strongly in favor of keeping Powell as Fed Chair. Yellen probably thinks that there’s little chance Congress will pass a big stimulus package, so she needs Powell to continue QE forever.

        • Wolf Richter says:

          MonkeyBusiness,

          Yellen knows QE will be finished by mid-2022. Everyone knows. Powell confirmed that. So that’s not the question. The question is when will the Fed raise rates.

          Yellen as Fed chair, started raising Bernanke’s rates and then started planning the balance sheet reduction that was carried out under Powell, who continued raising rates and reducing the balance sheet until Trump started trampling on him.

          Inflation, the political bitch, is starting to scream. It’s already showing up in consumer surveys in a very bad way. At this rate, the administration will be begging the Fed to tamp down on inflation by raising rates. We have already seen some of it. Even Yellen has said a couple of months ago that higher rates would be good for society and the Fed too.

      • Nick Kelly says:

        Then mortgage rates will rise. Are there more owners than renters? Don’t know but suspect owners more likely to vote.

        The artificial suppression of rates for so long has probably led a lot of people and companies to opt for short terms. It has an eerie resemblance to the teaser rates before 2008.

        All I’m saying is there is no way out for rising rates that doesn’t involve pain for a lot of people. If the home owner borrowed short the pain is theirs, if they borrowed long the pain is the lenders.
        Then there is the pain for the largest debtor, the government and
        the national debt.
        Then there is the looming issue of the additional 3.5 trillion the left wing of the Dems want to borrow, which would have to be at higher rates.

        Interest rates below inflation seem like a magical way of defying reality, of conjuring wealth for all. The trick behind the illusion is to transfer the bill to the future, to the young or even the unborn. To the extent that rates rise, a portion of the deferred bill arrives now.

        Is it possible that consideration would be given to the price controls
        Nixon tried? I think he did wage and price controls but would anyone suggest wage controls to progressive Dems.

        • Nick Kelly says:

          Summary: I don’t think you can normalize rates without a recession.

        • Wolf Richter says:

          Nick Kelly,

          In the US, most mortgage rates are fixed for the term of the mortgage, with the 30-year fixed rate mortgage being standard.

          So if you bought a home last year and financed that home with a typical 30-year fixed rate mortgage, your rate will be the same for the 30 years, at the end of which your mortgage is paid off. So current homeowners, if they don’t plan on moving, couldn’t care less about mortgage rates.

        • Nick Kelly says:

          ‘If the home owner borrowed short the pain is theirs, if they borrowed long the pain is the lenders.’

          The 30 year rate is 3%, which if Fed rates normalize to the average rate of the last 50 years, puts all these mortgages far underwater. Maybe there will be a bank crisis like the S&L crisis, when rates shot up.

          Frankly, given the recent history of US banking crises, I think they should be more prudent than to lend for 30 years at the current rate of inflation, i.e. for nothing. But this is just an opinion.

          I don’t know who gets the pain when we stop kicking the can, but pain there will be.

      • 91B20 1stCav (AUS) says:

        Wolf-as the old saying goes: “…when your neighbor’s out of work, it’s a recession, when YOU’RE out of work it’s a depression…” …oh, wait…

        may we all find a better day.

  24. Z says:

    I read Volcker’s 2019 biography and the Bitcoin Standard back to back as I like to hear both sides of the argument. Mechanically speaking global currency experiments ( I.e. currencies floating and deflating against each other) is an untold cause of 70’s inflation. The oil crisis is a convenient fall guy but not the only one to blame. This time around central banks are very deep in their doodoo. Economics at the central bank level is magic seemingly defying the laws of physics. Is it possible to keep a society going forever through the creation of fiat currencies out of thin air? So far central bankers rival only the Egyptian priest in their skill to keep the party of civilization intact. On the other side we suffer a society with massive distortions. Asset inflation, depreciating currency, Uber-poor and Uber-rich does not make for a stable happy place. On one side you have the poor Afghani people now run by a sophisticated Taliban and on the other Bill Gates & Klaus Schwab.
    So do we: A. Destroy everything through runaway collapse of the system, B. Get transformed through mad max warfare with the elite C. Wildcard- Aliens, God(s), mega environmental/cosmic disaster shifts the focus.

    Sadly I don’t think the planners can keep it up much longer.

  25. CRV says:

    Powel explained, in a lot of word spaghetti, that not inflation itself was transitory, but the RISE of inflation was transitory. This left him room to acknowledge that the inflation that is behind us, is permanent and that there is more to come in a decelerating way (in his mind), losing momentum. We’ll have to see if he’s right on that assumption. I think he’s too late and is waiting too long to stop the musical chairs charade. But hé, when there are 10 chairs left and they are reserved for you and your closest friends, what’s there to worry?

  26. historicus says:

    The GREAT BIG DIFFERNCE between now and the 1970s…
    In the 70’s we had a Fed who FOUGHT inflation
    In the 21st Century, we have a Fed that PROMOTE INFLATION..

    and we may all ask, “What Changed? and Why?”
    An intentional deviation from the “spirit” and “conditions” that created and allowed the Fed to operate. “When?” Cui Bono?

    • drifterprof says:

      The Fed was created in 1913 as a tool for American oligarchs to hoodwink the public about what they were really doing: creating macroeconomic crises to enrich the oligarchy while hoodwinking the public into thinking there were other causes for the crises.

      Maybe the Fed did something “right” in the 70s, but if it is like their habitual historical behavior, was even more “right” for the wealthiest people.

      • #24 says:

        Review the Market 1890 to 1910, wild fluctuations not amenable to the common working person. Fed was created by popular demand. Keep in mind until 1920 most Protestant Banks did not recognize ‘interest’ (time preference) as legal.

        • #24 says:

          Puts & Calls were the game …

        • Nick Kelly says:

          Agree. The crash of 07 required JP Morgan to act as CB.
          GE stock went from 120 to 20, Westinghouse in receivership, while still harnessing Niagra with new fangled AC. The two cos had built out the grid with credit BEFORE there were many customers. Great prospects, but no cash. So does America fall behind in electricity?

          With bank runs and trusts going BK, Morgan assembled a group of bankers, told them to raise 25 million, and locked them in! (If 25M=2.5 billion today, seems like peanuts, this is because cash was not everywhere then) Today the Fed does this kind of work out, but there was no Fed.

          As today but worse, the US was overbanked with over 6000 national banks and over 16000 regional banks. Suddenly all this leverage looked like dominoes.

          Something else very important: the US Treasury was short of money! and not in a position to do much. This was before Keynes and the idea that the gov could just create liquidity and debit its account hadn’t been invented.

          Once again, Keynes would be horrified at the use politicians have made of his ideas to replace gold. He believed in balanced budgets. The gov would spend in recessions using the SURPLUS from the boom times. Heard the word ‘surplus’ lately?

          But today both Keynes and central banks are condemned with knee jerk reactions. Especially puzzling is David Stockman’s ranting about Keynes, when Stockman was there for the political take- over of the theory and described it in ‘The Triumph of Politics’.

          BTW David; it’s the ‘warp and the weft’ of a fabric or economy, not the ‘warp and the woof’

  27. #24 says:

    Renters paying rent is forgone, Rentiers will be paid by the government from here on in.

Comments are closed.