Video Exchange Plus My Comments
- Powell: “We are taking the only measures we have to bring inflation down.”
- Mish: That is correct. The Fed is hiking rates and conducting quantitative tightening. The Fed only has blunt instruments. plus forward guidance.
- Warren: “And putting 2 million people out of work is just part of the cost, and they just have to bear it?”
- Powell: “Will working people be better off if we just walk away from our jobs and inflation remains 5 or 6 percent?”
- Mish: Powell answered the question with a question. But his answer as a question implies: Yes, they will just have to bear it.
- Warren: “Let me ask you about what happens if you do this. Since the end of WWII, there have been 12 times in which the unemployment rate has increased by one percentage point within one year. Exactly what you are aiming to do right now. How many of those time did the US economy avoid falling into a recession?”
- Powell: “You know it’s not as black and white as that.” [Warren interrupting starts to repeat her question, the Powell interrupts Warren] with “Alan Blinder has written a book on this” but that’s as far as he got with Warren interrupting again.
- Warren: “There have been 12 times that we have seen a one point increase in the unemployment rate, in a year. That’s exactly what your Fed report has put out as a projection, and the plan how you are going to keep raising interest rates. How many times did the economy fail to fall into a recession after doing that, out of 12 times?”
- Powell: “I think the number is zero.”
- Warren: “I think the number is zero. That is exactly right.”
Political Football
Agree or not with either stance, Senator Warren just turned Fed policy into a huge political issue.
Powell was a bit flustered by Warren’s questioning, stuttering a bit to find answers. He also totally blew one response. Did you catch it?
The Fed is not “aiming” to raise the unemployment rate by one percentage point as Warren stated.
Rather, the Fed projection shows it “expects” the unemployment rate to rise by one percentage point.
Powell’s “aim” is to reduce inflation.
Nonetheless, as Warren put things, “And putting 2 million people out of work is just part of the cost, and they just have to bear it?”
What Followed That Exchange?
I don’t know, but it doesn’t matter.
There is nothing in the video that is out of context. A flustered Powell gave a poor response.
The clip has 120,000 views, and it will be repeated elsewhere in other ways that may hit a million or more.
Warren does not care about inflation. Powell is too late about caring for inflation that the Fed is largely responsible for.
Push for Permanent Inflation
Lose-Lose Setup
This is a lose-lose setup no matter whether it’s Powell or Warren who gets their way.
But Powell gets to decide.
Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession
On August 19, 2022 I commented Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession
It’s payback time for three consecutive bubbles. Expect a long period of weak growth, no matter how it’s labeled.
This time there will not be bailouts. Nor will the Fed quickly reverse on interest rate policy out of fear of stimulating more inflation and unwanted demand.
The housing sector figures to be weak for a long time, with the Fed unable or unwilling to offer much assistance.
Fed’s Hands Are Tied
The Jobs data speaks for itself. That is half of the Fed’s mandate. If jobs (unemployment) is relatively strong as I expect, the Fed will have met that half of its mandate.
The Fed’s other mandate is price stability. Everyone on the planet knows the Fed flunked. It gets grade F.
The Fed does not want another grade F. It will err on the side of caution unless there is a credit event or huge rise in unemployment.
I believe I made the overall right call then even though my recession start date of May or June missed the mark.
Unemployment Rate Hits New Low of 3.4 Percent as Jobs and Employment Jump But…
On February 3, I noted Unemployment Rate Hits New Low of 3.4 Percent as Jobs and Employment Jump But…
The “But …” is in regards to full time employment (yellow line in the above chart).
However, it seems preposterous to moan about unemployment when the rate is at a record low.
Yet, Warren managed to do just that.
Unemployment Rate, Seasonally Adjusted
Demographically Sobering Thoughts on US Employment in the Next Five Years
It’s important to realize that employment can drop by millions without much of any change in the unemployment rate.
My unemployment rate theory implies a “long period of weakness” not an economic crash like we saw in 2008.
But this is not 2008. We have no liar loans, and most homeowners are still in the green with mortgage rates at 3.0 percent or so. People will not be walking away from their mortgage.
That does not mean a crash is impossible, it just makes it far less likely.
How Much Will the Unemployment Rate Rise?
I do not know, nor does anyone else. But I have a bet on it. Pizza and beer.
Recession Rise in Unemployment
Demographics and fundamentals both suggest the exact opposite of the Covid-recession that was very short and very steep.
For demographic discussion, please see Demographically Sobering Thoughts on US Employment in the Next Five Years.
In 2001 and 1990 recessions, the unemployment rate only rose 1.1 percent. Based on demographics, half that would not surprise me in the least.
I have some new charts that I am working on that also suggest this is the correct line of thinking.
Will do a new post and hopefully another interview with Adam after the post.
Thanks Adam.
Meanwhile, please note Powell’s Hawkish Speech to Congress Sends Interest Rate Hike Odds Soaring
This post originated at MishTalk.Com.
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Mish
The
commercial banks are credit creators. The non-banks are credit transmitters.
Lending/investing by the DFIs expands both the volume and the velocity of new
money. Lending by the NBFIs increases the turnover of existing deposits (a
transfer of ownership), within the commercial banking system.
Governors reduced the reserve requirement on checkable deposits to zero. This
action ended the Fed’s ability to control M1.”
The only tool, credit control device, at the
disposal of the monetary authority in a free capitalistic system through which
the volume of money can be properly controlled is legal reserves. Powell
eliminated legal reserves in March 2020. And Powell also eliminated deposit
classifications.
Monetarism has never been tried.