In the press conference, Powell blamed tariffs and said the BLS overestimated jobs. 
If you missed the press conference (click to play), no one asked Powell about health care inflation or the PCE, but the reporters did press him on inflation and jobs.
QE Resumes
“The the committee has determined that reserve balances have retuned to ample levels”. Apparently, ample isn’t good enough so the Fed is blasting out more QE and more free money to banks.
“Reserve management purchases [QE] will will be $40 billion in the first month and may remain elevated for several months.”
I will comment more on QE in a following post.
Jobs and Unemployment
Powell: “I should mention on the data that we are going to need to be careful in assessing, in particular the household survey data. There are very technical reasons about the way the data are collected, both in inflation and labor. The data may be distorted and not just volatile, but distorted because data was not collected in October and half of November.”
Financial Times Reporter: “Why did the committee decide to move today rather than January?”
Powell: …”Payroll jobs averaging 40,000 per month since April. We there there is an overstatement by about 60,000 so that would be negative 20,000 per month.”
Inflation
“The evidence is growing that services inflation is coming down and that is offset by increases in goods. And that goods inflation is entirely in sectors where there are tariffs. More than half the source of excess inflation is goods, tariffs.”
Powell refused a question on the tariff issue before the Supreme Court. “We’re not legal commentators.”
“With tariff inflation there is the announcement, and then they start to take effect. It takes some months. Goods have to be shipped, it can take quite a while before the full effect. If there are no new tariff announcements, and we don’t know that, inflation from goods should peak in the first quarter or so. We haven’t been able to predict this with any precision, no one is.”
Powell estimated 9 months for the full impact.
Hoot of the Day
“There’s nothing happening with rates going up that suggests concern about inflation in the long term. Surveys are all saying that the public understands our commitment to 2 percent and they expect to see it back there.”
Do you believe that? The more important question is how does it matter?
Consumer expectations do not set inflation. Even Fed studies show that.
Powell continues. “So why are rates going up. It has to be something else. It must be an expectation of higher growth or something like that. The big move towards the end of last year had nothing to do with us.”
Mercy!
Bloomberg: “You just mentioned the public is expecting you to get back to two percent. But American are overwhelmingly citing high prices. Inflation is their number one concern. Can you explain why you are prioritizing the labor market which seems relatively stable, instead of their number one concern.”
Powell: “We have a network of contacts that is unmatched. So we hear loud and clear how people are experiencing costs, really high costs. A lot of that is just embedded higher costs due to higher inflation id 2022 and 2023.”
Politico: “This is the third time you’ve cut this year and inflation is around three percent. So, is the message you are trying to send, that you’re OK with where inflation is now, as long as people understand that at some point you want to get back to two percent? Because inflation is relatively stable where it is.”
Powell: “The surveys show we are committed to two percent inflation. But it’s a complicated, difficult and unusual situation. Job creation may actually be negative. The labor market has significant downside risks. The story with inflation is that if you get away from tariffs, it’s in the low twos. So it’s really tariffs.”
Back to Jobs
ABC Reporter: “Why is job growth so much worse than official data?”
Powell: “This isn’t particularly controversial. There’s been something of a systematic overcount. We think it’s about 60,000 a month so job 40,000 growth could be negative 20,000.”
Powell really misses the mark here: “If there were big layoffs, you would expect continuing claims to go up. So, it’s a little bit curious.”
Well it’s, not a bit curious. Continuing claims are not rising steeply because people have exhausted all of their unemployment insurance benefits.
Inflation Expectations Yet Again
On September 12, 2025, I noted Consumer Sentiment Sours in September, Inflation Expectations Rise
Year-ahead inflation expectations held steady at 4.8%, unchanged from August. Long-run inflation expectations moved up for the second straight month to 3.9% in September.
So Powell is in fantasyland. But he’s lucky in a sense because expectations are irrelevant.
Inflation Expectations Don’t Matter
Every FOMC meeting the Fed Chair, currently Jerome Powell, makes a fool of himself with nonsensical discussions on inflation expectations.
How can they matter? If you do think they matter, then answer this simple Q&A.
Consumer Inflation Expectations Q&A
- If you think the price of rent will jump next year, will you rent two houses now to beat the rush?
- If you think the price of rent will fall next year, will you hold off renting until rent falls?
- If you think the price of medical care will jump next year, will you have two operations now to beat the rush?
- If you think the price of medical care will fall next year, will you hold off on a needed operation?
- If you think the price of a vacation will jump next year, will you have two vacations this year and none the next?
- If you think the price of a vacation will drop next year, will you have no vacations this year and two the next?
- Will you stop eating? Eat more?
- If you car breaks down will you fix it twice? Wait until next year?
OK, maybe you wait for a sale to buy a coat. But you probably don’t by two. And if your coat rips, and you need one, you may not wait at all.
Businesses Inflation Expectations
Grocery stores can’t do anything at all, for obvious reasons.
How many cars can dealers fit on their lots? And what if consumers don’t buy?
Other than a few month’s inventory, assuming storage space, but at a cost and risk, businesses cannot do much either. If they do it’s a one-time impact of pushing supplies forward. Then what?
Fed Study Agrees
No study should be needed to prove the logic of what I just stated. However we do have a study, and it’s by the Fed.
Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)
Please consider Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) by the Federal Reserve.
Mainstream economics is replete with ideas that “everyone knows” to be true, but that are actually arrant nonsense.
The direct evidence for an expected inflation channel was never very strong. Most empirical tests concerned themselves with the proposition that there was no permanent Phillips curve tradeoff, in the sense that the coefficients on lagged inflation in an inflation equation summed to one.
Finally, even if one is willing to entertain the idea that in some vague, mushy sense concern over costs and demand by individual firms facing fixed prices leads to a dependence of aggregate inflation on expected inflation, we are still left with the conclusion that short-run expectations should be the ones that are most important.
One might also be uneasy about policymakers’ relying too heavily on the assumption that inflation’s long-run trend will remain stable going forward so long as measured long-run inflation expectations do. Even if every one of my preceding arguments is judged by the reader to be completely unconvincing, it nevertheless remains the case that we have nothing better than circumstantial evidence for a relationship between long-run expected inflation and inflation’s longrun trend, and no evidence at all about what might be required to keep that trend fixed (beyond that it might involve keeping actual inflation from moving up too much above two percent on a sustained basis).
[Mish note: The last two paragraphs are a direct criticism of Fed policy as practiced by every Fed chair and people dismiss these reports without reading. The next paragraph is a hoot as well.]
Or would you justify the view that expectations “matter” by pointing to the inflation experience of the 1960s and 1970s, even though that period provides no actual evidence that workers or firms tried to boost their wages or raise their prices in anticipation of future price or cost changes?
Health Care – The Question Not Asked
With that bit of Fed nonsense out of the way, no reporter asked about health care.
I have crunched the numbers and they are not pretty.
The Fed’s preferred measure inflation is the Personal Consumption Expenditures (PCE) price index.
The PCE puts a much higher weight on health care than the CPI. And health care costs are soaring.
I discussed Obamacare in my post How Much Will 4.5 Million Florida Residents Pay for Obamacare in 2026?
Florida has over ~4.7 million residents enrolled in ACA exchange plans, 97% of whom are currently subsidized.
A 64-yr old couple earning $90,000/yr would go from paying $637/mo to a jaw-dropping $3,176/mo…or FIVE TIMES AS MUCH FOR THE SAME POLICY. That’d be $38,000/YR IN PREMIUMS ALONE, or 42% OF THEIR GROSS INCOME.
The KFF foundation estimates an average 114 percent increase, so I don’t doubt the numbers presented, or the rationale that Florida will be worse than average.
More importantly, to the PCE, Medicare and corporate healthcare costs are soaring.
The average rate increased for both are about 9.25 percent.
Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible
On December 8, I commented Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible
Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.
I expect a rise in the Health Care weight in the PCE. I also expect a net 1.5 percentage point increase in PCE inflation in 2026 due to health care.
These estimates stem from health care price hikes across the board (Medicare and corporate plans), not counting the huge ACA impacts.
The Fed’s PCE inflation target is 2.0 percent. If I am in the ballpark, health care alone rates to take up 1.5 percentage points of that target, again, not counting Obamacare!
Unless jobs collapse, and they easily can, the Fed is going to struggle to justify rate cuts. And if they do cut, the most likely reason will be jobs. It’s not a good place for the Fed.
Click above link for details and the health care math.
Powell is a Hack
Powell seems like a nice guy doing an impossible job. The Humprey Hawkins act certainly made the fed’s job impossible. I expect inflation next year given higher deficits and some cost push from health care and tariffs. The US is a locomotive heading for a serious derailment.
The main cause of inflation is congress not balancing the budget. But know one seems concerned about that anymore.
Tariffs account for the rest.
A small point of your post, but if taxpayers need to to subsidize $2,500/month for a family making $90K per year for their healthcare, it’s broken. It seems like it is almost better to have short chaos of most people not having health care coverage. Optimistically this could forge a new beginning to health care that works for the masses. I pay $1,200/month now through my employer and if it goes up even $500/month we will be dropping it.
Thanks for comments on dropping out
Best wishes
It seems pretty obvious by now that Trump‘s 2025 tariff chaos has been a negative supply shock par excellence. It triggered a new pickup in goods inflation on the price side, and it has severely damaged the SME sector on the production side. That said, future authors of economic textbooks will be grateful to Trump for having provided them with compelling evidence that chaotic tariff policies can cause real economic damage.
Well now the farmer equipment manufacturers want a handout because of Trump’s tariffs.
https://www.cnbc.com/2025/12/10/trump-aid-agricultural-equipment-farm-trade.html
Agricultural equipment manufacturers are seeing weak demand as President Donald Trump’s tariffs rip through the agricultural economy.
Top senators appealed to the White House to aid equipment manufacturers just days after Trump announced a $12 billion bailout for farmers.
More farm aid is likely on the way from Congress.
Absolute stupidity but this is why all roads lead to socialism.
From a Mish post dated August 3, 2012:
“My definition of inflation is an increase in money supply and credit with credit marked to market. Deflation is the opposite.
Prices are clearly not part of my definition, and prices can indeed rise in a credit-deflationary period.”
Tariffs impacting prices are not a part of the definition either. Prices go up and down for many reasons. Nominal prices change as a result of inflation but changing prices do not cause inflation. Changing the whole concept of inflation has made it easy for the fed to buffalo the public. Powell’s entire inflation discussion is total bs and he knows it. It is deflection to cover for the fed’s total failure to adhere to its inflation objective. Since Nixon ‘temporarily’ removed the last dollar link to gold in 1971, gold is up some 12,000%. Basically, gold provided discipline to maintain the dollar’s value. With the gold convertibility removed, responsibility for maintaining the dollar’s purchasing power lies with the fed and the fed has failed miserably.
The Ph.Ds. at the FED don’t know a debit from a credit.
I define Santa Claus as the Easter Bunny, but that don’t make it so.
“gold provided discipline to maintain the dollar’s value”? What?
Gold stayed flat near $35 from 1933 thru 1970, before Nixon. The US had a lot of annual inflation during that period so the “dollar’s purchasing power” was not ‘maintained’.
https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart
https://www.macrotrends.net/2497/historical-inflation-rate-by-year
You’re putting out bunk – whether you realize it or not
In order to keep gold at $35 per ounce, the US was selling its gold reserves and that worried President Nixon. To maintain gold reserves, they severed the ability convert dollars to gold. The issue was not changing gold value, after all it is a pet rock; it was overspending to cover guns (Viet Nam war) and butter (Great Society) policy initiated by President Johnson. Borrowing to cover the deficit was pushing up inflation via more spendable dollars via additional debt (see chart around 1965/66) and interest rates. Gold was doing its work maintaining the dollar’s value, but profligate fiscal policy was eroding ability to borrow necessary dollars at reasonable interest rates. To keep the overspending charade going without running up rates money supply needed to increase but that put pressure on the gold supply, thus the convertibility was severed. In short it was dollar value erosion, and the gold backing exposed it. The dollar never did back the price of gold and never will. Gold is real, dollar is fiat. Gold cannot be printed; fiat can be printed.
Your linked charts show inflation during the two world wars when the government spent way over revenues otherwise there is not perfect, but relative balance. Following the gold severance, the dollar has consistently lost purchasing power and gold has consistently held purchasing power. That is not bunk.
– Powell blamed tariffs and said the BLS overestimated jobs.
> The Tariff situation is still in flux, and no data can possibly be more than a guess at this point. We don’t have nearly enough consistent data to bank on. We have a convoluted mess is all we have right now. Nothing set in stone, No long term agreements, and no long term understanding of needs Vs. Wants, so no you can’t blame Tariffs for anything just yet. You can obviously “Cherry Pick” data to make a point, but that doesn’t make it accurate now does it… We are 100% sure however, that the BLS is “Garbage In / Garbage Out” and has been for quite sometime. Does making data look better because you manipulated it, or is the data even real to begin with. It’s a Joke!
– no one asked Powell about health care inflation or the PCE, but the reporters did press him on inflation and jobs.
> Of course not, as the way to knock the current Administration is by attaching Inflation to them, right or wrong, it’s a good stab at them just the same. Anything they can smear, or conjure up as an issue works for the lap dog “Voter Base” that they have. There like rabid animals looking to take a bite out of anything that looks good or bad!
– “The committee has determined that reserve balances have retuned to ample levels” Fed is blasting out more QE and more free money to banks.
> So Our Reserve balances are good, but Damn It, The Banks Need Money!!!
– “The evidence is growing that services inflation is coming down, And that goods inflation is entirely in sectors where there are tariffs. More than half the source of excess inflation is goods, tariffs.”
> I would love for the Fed to try and break that comment down into factual and relevant data. They can’t! No Chance or Ability to do so, at this point.
– We haven’t been able to predict this with any precision.
> Makes sense, because we have never been here before now. Funny how the data is available to knock Tariffs and to knock anything they want it to, but yet we have no accurate information, or any length of information to draw such conclusions. It’s ALL A Guess at the moment.
– Powell, makes a fool of himself with nonsensical discussions on inflation expectations.How can they matter?
> He can’t answer any of those questions! They live in a make believe world to hurt the other side. They disagree to simply disagree, and no other reason most of the time. They cherry pick data all the time and blast it all over like it’s meaningful, but it can’t be when cherry picked, as that is an isolated, warped, and designed practice, to make your Own Point, and has nothing to do with facts. That requires ALL The Data to do so accurately…
>> Powell has turned out to be simply a puppet and those telling Him what to do and when are morons by the looks of it. Our Country’s support structure is appearing more and more like it’s “Being Run By Imbeciles” and maybe it’s more than just a look, but Our Countries New Reality… Maybe a bunch of them need to be replaced?
Tariffs aren’t responsible for the high cost of healthcare. Powell and the Fed blame everyone else for their policy mistakes.
Really?
https://www.cnn.com/2025/09/25/business/us-investigates-medical-equipment-robotics-tariffs-intl
The majority of healthcare is provided by a person not medical equipment. A LOT of medical equipment currently being used for healthcare was already purchased prior to Trump becoming President. The Tarrifs on medical equipment doesn’t account for 25-50% increase in monthly premiums. I also don’t believe ANYTHING from CNN. They are extremely biased.
In the press conference, I heard Powell admit that he wants a wage growth “spread” higher than inflation growth, as it is currently. Well, I want a billion dollars by the end of next month, but just because I want it isn’t going to manifest it. Actions change outcomes. And the current Fed action of blowing off inflation is going to manifest itself as (medium term) future job losses. Increasing the rate of inflation is more likely to reduce consumption than it is to widen the wage growth spread above inflation. Increased wages just lead to increased prices, and concentration of wealth among key sectors rather than a broadening of purchases across an increasing diversity of sectors. The data is already clearly showing that, as the top third of households is responsible for a strong majority of total economy wide spending! If the top 10% of households are responsible for 50% of retail spending, is the top third of households responsible for 85%?
<<Actions change outcomes>>
In my industry (translations),
1st Action: Small price increase by Agencies to End Clients
Reaction: Lots of End Clients reacted by having amateurs do the translations, large legal firms started automating theirs, and the request for machine translation technologies became necessary.
2nd Action: Agencies, seeing their revenue decline, started using parachute translators, part-time offshore project managers, and agressive rate reductions to translators.
Reaction: Older/veteran professional translators started leaving the industry. Much material was fed to the machines to recreate their experience. The new translators just accepted the machine suggestions, even those which “kinda matched”.
Result 1: Cookie-cutter translations all over the place, same expressions used across different industries/specialties, poor and repeated boilerplate stuff all over the place, and quite a few hillarious errors in widely published materials which end up as memes on Facebook.
Result 2: Reduction of translators’ income by more than 60% in the last 5 years, and reduction of agency revenues by more than 40%, leading of course to massive acquisitions of the smaller (yet better) agencies by the largest.
————————
— My point is that yes, actions change outcomes but many times it’s unpredictable or opposite. Everything backfires, both the prudent and the reckless acts. What started as a “reasonable price increase” eventually led to “revenue reduction and qality reduction” across the entire industry, worldwide. It also killed competition in the process. The “experts” were expecting the opposite. Nobody expected death of competition in the process!!!
I think it’s about time they start teaching chess in schools, so that students learn what “backfired” means.
If conditions remain the same, it may be 6 votes no and 6 votes yes to lower the Fed Funds rate from 3.75%. A tie vote means they make no change to the rate. The Fed wants at least a safety margin of 0.75% over annual inflation, which is now around 3%.
So if tariffs were reduced or eliminated, then what would be the annual inflation rate ? No more than 2.5% ?
What do we do Mish? Help us navigate this.
Commodities and hard assets (especially those not subject to taxes).
For more sophisticated and risky stuff, ask the traders, is my guess.
So sounds to me that Powell is blaming Trump for inflation in the economy via tariffs. This is not going to make Trump happy. Not at all. What reporter will bring this question forward in Trump’s next presser? [lol]
Now, unless Powell is betting on SCOTUS tossing out Trump’s tariffs and ordering immediate refunds and therefore, in Powell’s economic view, inflation suddenly reversing into the low 2% range, WHY exactly would Powell discount currently existing tariffs in order to reduce interest rates and thereby potentially boost inflation even higher?
Yes, he blames the tariffs for inflation yet he still votes today to lower the Fed Funds rate from 4% to 3.75%.
So Trump’s tariffs must not be that much of a risk factor to cause him and 8 other FOMC members (out of 12) to keep the rate at 4%.
The Fed has missed it’s 2% target EVERY MONTH since ~January 2021! So time to print more money?
There is one & only one thing you can trust the Fed to do: To continually debase the value of the $s you earn and save.
They are going to have to adjust or recalibrate possibly to 2.5% annual inflation.
The bond vigilantes are emerging. After 6 rate cuts and two years of consolidation, yields are starting their next bull market. The 30 year US bond yields are above their 200 day moving average and much closer to their consolidation highs than lows. Yields on the 10 year US bond are in the middle of the consolidation range. The Fed is about to have its “emperor is wearing no clothes” moment.
The emperor and all of his minions are wearing no clothes so perhaps none of them will notice and inflation will rage unchecked.