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Powell: "We understand better how little we understand about inflation”

Powell made a shocking statement today at an ECB-sponsored forum on inflation, that the Fed does not understand inflation.
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Image clip from YouTube video below.

Image clip from YouTube video below.

The ECB held a forum on inflation earlier today. The attendee list, quotes, and a video follow.

ECB Forum Attendees 

  • Jerome Powell: Fed 
  • Christine Lagarde: ECB
  • Andrew Bailey: Bank of England
  • Agustin Carstens: Bank of International Settlements
  • Francine Lacqua.: Bloomberg Moderator

Notable Quotes

  • Powell: "We understand better how little we understand about inflation.
  • Powell: “What we don’t know is whether we’ll be going back to something that looks more like or a little bit like what we had before -- we suspect it’ll be kind of a blend. We’re learning to deal with it.” 
  • Bailey: “It’s how you deal with a series of large supply shocks with no air gap between them, which of course feeds through into expectations. Put them all together, they’re not transitory in the traditional sense of the term.”
  • Lagarde: “There are forces that have been unleashed as a result of the pandemic as a result of this massive geopolitical shock we are facing now that are going to change the picture and the landscape within which which we operate."
  • Powell: “There’s a clock running here. The risk is that because of the multiplicity of shocks, you start to transition into a higher-inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening.”
  • Lagarde: “Moving gradually is certainly appropriate in times of high uncertainty."
  • Powell: "The process is highly likely to involve some pain, but the worse pain would be in failing to address this high inflation and allowing it to become persistent."
  • Powell: "If what we see is a re-division of the world into competing geopolitical and economic camps, and a reversal of globalization, that sounds like lower productivity and lower growth. That's a possible outcome and probably a likely outcome"
  • Powell: "Households are in very strong financial shape. They still have a lot of excess savings from forced savings and also fiscal transfers. The same is true of businesses. The labor market is tremendously strong. Overall the US economy is well positioned to stand tighter monetary policy."
  • Powell: "Our aim is to have growth moderate. It needs to happen."
  • Powell: "Shape of the yield curve is not a top line worry."
  • Lacqua to Powell: Paul Krugman said on Friday that the number one risk is the Fed could overdo it. Is that really possible?
  • Powell: “Is there a risk we would go too far? Certainly there’s a risk. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.”

Powell statements translate to damn the recession full speed ahead with hikes.

In contrast, Lagarde wants to move slowly despite the fact that inflation in Spain hit a record high 10 percent since being on the Euro. 

YouTube Video

Real GDP in Billions of Dollars 

Real GDP in Billions of Dollars 2022 Q1 Final Inventory Detail

Real GDP fell 1.6 percent in the first quarter. 

More importantly, real final sales, the true bottom line measure of the economy fell 1.2 percent. 

That downgrade came from the BEA today. 

The Odds of Recession Starting in the "First" Quarter of 2022 Just Leaped

My comment on the downgrade was The Odds of Recession Starting in the "First" Quarter of 2022 Just Leaped

Allegedly consumers are in good shape. So why the massive inventory overhang?

 "Our aim is to have growth moderate. It needs to happen," says Powell.

Let's translate that accurately: We Need a Recession. 

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Shocking Admission

"We understand better how little we understand about inflation,” said Powell. 

For years it's been obvious the Fed does not understand inflation. The only thing shocking is Powell's admission of the obvious.

Will the Fed Overshoot? 

That has been my stated position for a long time.

Today, Powell practically admitted that will happen.

Powell: “Is there a risk we would go too far? Certainly there’s a risk. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.”

Given that Fed policy works with a lag, another three-quarter point hike alone might cause an overshoot. But the Fed has penciled in many additional hikes through the end of the year.

I've Seen Enough, the US is in Recession Now, Q&A on Why

On June 22, I commented I've Seen Enough, the US is in Recession Now, Q&A on Why

Today's GDP revision adds more evidence to the recession has already started thesis. It makes a mockery of Fed talk that the "consumer is strong".

With the Q2 GDPNow estimate of RFS still at +1.7% I will stick with my estimate of a recession that started in May.

But we are one retail sales revision away from a recession that may be two-quarters deep right now (with much data for the quarter still on the way).

For a look at how the current quarter is tracking, please see GDPNow Forecast Inches Up to 0.3 Percent, But What's On the Way?

This post originated at MishTalk.Com.

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