Home Economic Trends Powell: “You Wanted Inflation” – Robert Aro

Powell: “You Wanted Inflation” – Robert Aro

Official portrait of Governor Jerome H. Powell. Mr. Powell took office on May 25, 2012, to fill an unexpired term ending January 31, 2014. For more information, visit http://www.federalreserve.gov/aboutthefed/bios/board/powell.htm

This December’s Federal Open Market Committee (FOMC) meeting might be the last time we get to hear a Q&A session from Chair Powell this year. The Q&A is televised, with the transcript presented on the central bank’s website, and continues to provide invaluable knowledge into the mind of one of the most powerful men in America. Of all the quotes Powell gave us this year, the one below stands as one of the best. Said near the conclusion of the December meeting, on p.26 of the transcript reads:

What I’m saying is there’s a sense among some that you wanted inflation, this is what you wanted, how do you like it, you know?

It’s recommended to read the entire one-page dialogue that accompanies the above quote, if nothing else to see first hand how discombobulated answers are preferred over honest ones.

Powell responded to a reporter asking him what he meant earlier when the Chair said they were not getting the inflation the Fed anticipated. The reporter asked if the inflation is a result of all the stimulus.

After responding that inflation is what some people wanted, Powell followed with (excuse his grammar):

And the truth is, this is not the inflation that we were — that what we were talking about in the framework was inflation that comes from a tight labor market, right?

He doesn’t make clear what exactly the right type of inflation is. Then the speech digresses line after line of muddled half-thoughts between inflation and employment from there. It’s sad to say, but his explanations are not coherent. For the sake of brevity, the quotes aren’t included. But he ends with defending the Fed’s actions for the benefit of the country. As explained:

And what’s coming out now is, you know, really strong growth, really strong demand, high incomes, and all that kind of thing. You know, people will judge in 25 years whether we overdid it or not but, you know, the reality is, we are where we are. And, you know, we think our policy is the right one for the situation that we’re in.

For the record. Powell is completely wrong, or lying.

Inflation is like socialism; anyone who understands it does not want it. The only people who thought (price) inflation would make the country a more hospitable place are those who mistakenly believe inflation means growth. It’s the rationalization of currency debasement as national policy which continues to permeate amongst central bankers, those on television, and in academia.

On behalf of the overwhelming majority of people not considered “rich,” no one wants the prices of everything they purchase to perpetually increase year over year, whether it’s food, rent, medicine, transportation, clothes, or college tuition.

This gets worse because Powell shows an understanding of this entirely. In his opening remarks he says:

We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation.

He acknowledges how price increases on essentials to life, such as food, pose a burden on certain members of society. So far so good… except rather than expanding on this idea he immediately follows with:

We are committed to our price stability goal.

Unfazed by his previous sentence, the harm inflation causes is secondary to the benefit that comes when price stability is obtained at last.

He’s completely wrong here as well. Until the Fed gets over its fear of deflation, there will be no price stability. There will only be perpetual and compounding effects of inflation, which is ironic, because that’s the exact opposite of price stability.

As the year comes to a close, there is enough information to anticipate how this ends. The Fed’s new asset purchases are expected to decrease to zero by March of next year. Interest rates should increase some time after. If the Fed stops further asset purchases and the government somehow reigns in spending, such as stopping stimulus checks or other free money giveaways, then we can hope price increases will slow down. And that’s if, and only if, everything goes according to plan. If a new virus mutation or some other external event poses a threat to the economy, don’t be surprised if the Fed abandons its plans to take on a more accommodative stance once again.