Powell Warns the Markets and Trump that His Patience with Inflation Has Limits

Powell’s speech was to Harvard students but read between the lines.

Patience Has Limits

The Wall Street Journal reports Powell Says Fed Can Look Past Oil Shock, but Warns Patience Has Limits

Powell, speaking to students at Harvard University, laid out the textbook case for patience: Energy disruptions tend to be short-lived, and monetary policy works too slowly to counteract them in real time. He added a critical caveat, however, by noting how five years of above-target inflation made it harder to assume the public would simply shrug off another round of rising prices.

“You can have a series of these supply shocks and that can lead the public generally—businesses, price setters, households—to start expecting higher inflation over time. Why wouldn’t they?” Powell said.

Powell tiptoed away from saying how the Fed would answer that riddle. “We will eventually maybe face the question of what to do here. We’re not really facing it yet because we don’t know what the economic effects will be,” he said.

Over the last two weeks, Powell’s colleagues have amplified the message that the era of benign rate cuts—reductions the Fed could justify simply as unwinding its prior tightening—is over. Instead, they have signaled the Fed is likely to leave rates where they are until either the labor market shows signs of outright deterioration or inflation declines. 

The Fed is Not in a Good Place

That was my analysis months ago. On January 29, I asked Dear Jerome Powell, Are You Sure the Fed Is in a Good Place?

On March 19, I noted Odds of Fed Rate Hikes Now Exceed Cuts Through October

Higher did not means odds-on, just more likely. Eight percent chance of higher and 1 percent chance lower.

I checked just now. For October, it’s now 4.3 percent higher and 6.7 percent lower.

The market believes rates are on hold.

Gasoline Prices Surge $1 from a Month Ago

On March 25, I asked Gasoline Prices Surge $1 from a Month Ago. Think this Won’t Hit the CPI?

Trump promised to lower energy prices. How’s it going?

US Crude, WTIC closed above $100 today. And it’s up again after hours to $106.38.

Gasoline prices are highly likely to rise above $4.00 tomorrow.

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