Fed Chair Jerome Powell delivered a message today at the annual Jackson Hole meeting. Powell reiterated the Fed’s commitment to a 2 percent target.
Inflation: Progress and the Path Ahead
Please consider snips from Inflation: Progress and the Path Ahead by Jerome Powell at Jackson Hole, Wyoming. emphasis mine.
Today I will review our progress so far and discuss the outlook and the uncertainties we face as we pursue our dual mandate goals. I will conclude with a summary of what this means for policy. Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks.
On a 12-month basis, core PCE inflation peaked at 5.4 percent in February 2022 and declined gradually to 4.3 percent in July [Figure 1, panel B – lead image]. The lower monthly readings for core inflation in June and July were welcome, but two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.
In the highly interest-sensitive housing sector, the effects of monetary policy became apparent soon after liftoff. Mortgage rates doubled over the course of 2022, causing housing starts and sales to fall and house price growth to plummet. Growth in market rents soon peaked and then steadily declined. [figure 3 image below]
Because leases turn over slowly, it takes time for a decline in market rent growth to work its way into the overall inflation measure. The market rent slowdown has only recently begun to show through to that measure. The slowing growth in rents for new leases over roughly the past year can be thought of as “in the pipeline” and will affect measured housing services inflation over the coming year. Going forward, if market rent growth settles near pre-pandemic levels, housing services inflation should decline toward its pre-pandemic level as well. We will continue to watch the market rent data closely for a signal of the upside and downside risks to housing services inflation.
The Outlook
Turning to the outlook, although further unwinding of pandemic-related distortions should continue to put some downward pressure on inflation, restrictive monetary policy will likely play an increasingly important role. Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.
But we are attentive to signs that the economy may not be cooling as expected. So far this year, GDP (gross domestic product) growth has come in above expectations and above its longer-run trend, and recent readings on consumer spending have been especially robust. In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up. Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.
The labor market
The rebalancing of the labor market has continued over the past year but remains incomplete. Labor supply has improved, driven by stronger participation among workers aged 25 to 54 and by an increase in immigration back toward pre-pandemic levels. Indeed, the labor force participation rate of women in their prime working years reached an all-time high in June. Demand for labor has moderated as well. Job openings remain high but are trending lower. Payroll job growth has slowed significantly. Total hours worked has been flat over the past six months, and the average workweek has declined to the lower end of its pre-pandemic range, reflecting a gradual normalization in labor market conditions.
This rebalancing has eased wage pressures. Wage growth across a range of measures continues to slow, albeit gradually. While nominal wage growth must ultimately slow to a rate that is consistent with 2 percent inflation, what matters for households is real wage growth. Even as nominal wage growth has slowed, real wage growth has been increasing as inflation has fallen.
We expect this labor market rebalancing to continue. Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response.
Uncertainty and Risk Management along the Path Forward
Two percent is and will remain our inflation target. We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time. It is challenging, of course, to know in real time when such a stance has been achieved.
Conclusion
As is often the case, we are navigating by the stars under cloudy skies. In such circumstances, risk-management considerations are critical. At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data. Restoring price stability is essential to achieving both sides of our dual mandate. We will need price stability to achieve a sustained period of strong labor market conditions that benefit all.
We will keep at it until the job is done.
Figure 3 Rental Prices
Key Points
- The Fed is committed to a 2 percent inflation target
- Powell mentioned “carefully” twice.
- “Two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.”
- The Fed will watch rent data closely for a signal of the upside and downside risks to housing services inflation.
- “What matters for households is real wage growth. Even as nominal wage growth has slowed, real wage growth has been increasing as inflation has fallen.”
- Total hours worked has been flat over the past six months, and the average workweek has declined to the lower end of its pre-pandemic range, reflecting a gradual normalization in labor market conditions.
I have recently discussed many of those points.
Atlanta Fed and BLS Real Measures
Real means adjusted for inflation using the CPI as the measure of inflation.
Real wages are ticking up. To the extent real wages are rising more then productivity, the net impact is inflationary.
For discussion, please see Wages for New Hires are Falling, But the Impact is Negligible
My lead comment and the chart I posted both hit the mark.
Lead comment: “Falling wages for new hires only won’t appease the Fed.”
Pipeline Theory of Falling Rents
The pipeline theory of falling rent based off new leases has been wrong for 18 months.
The rate of increase in the price of new leases fell for three months then went outright negative for five consecutive months. There was a similar setup at the end of 2021.
Now the alleged “pipeline” theory of rent has been rising for six consecutive months.
It’s long overdue we toss away using the price of new leases as any sort of leading indicator of anything.
How Many Hours Are People Working Now vs the Pre-Pandemic?
As with Powell, I too have noticed the declining workweek.
Peak Weekly Hours
Weekly hours generally peaked sometime early in 2021. Retail trade weekly hours peaked in November of 2021. Total private weekly hours peaked at 35.0 hours in January of 2021 and has been sliding ever since.
Seven-tenths of an hour multiplied by the current employment level of 161,262,000 is 112,883,400 hours. At the current average work week of 34.3, that’s the equivalent of 3.29 million employees!
Let that sink in. At the reduced work week compared to January of 2021, the economy needed to add 3.29 million employees just to break even on hours worked.
Index of Aggregate Hours
How Many Hours Are People Working Now vs the Pre-Pandemic?
Powell commented “Total hours worked has been flat over the past six months, and the average workweek has declined to the lower end of its pre-pandemic range, reflecting a gradual normalization in labor market conditions.“
I noted the same thing in real time.
For details, please see my August 4, 2023 post How Many Hours Are People Working Now vs the Pre-Pandemic?
Hoot of the Day
It took an increase in employment of 1.07 million (1.34 million jobs) to work the same number of aggregate hours in July of 2023 as January of 2023.
Thus, strong jobs is really a function of the desire of employees to work fewer hours and/or employers fearful of any layoffs so they schedule a shorter work week for their employees.
For more on today’s job report please see For the Second Month, the Jobs Report Falls Short of Lofty Expectations
Everything Powell said today related to jobs, I discussed in real time.
Powell’s Warnings
Here is the key thing Powell said today: “As is often the case, we are navigating by the stars under cloudy skies.”
And to that I would add, using tools like inflation expectations proven to be totally worthless.
For discussion of inflation expectations and Biden’s energy goals guaranteed to be inflationary, please see Should the Fed Declare Defeat and Move On?
In the meantime SpaceX sent four astronauts to the ISS today.
And the Beat Goes On: Sonny and Cher
link to youtube.com
Re-balancing of supply and demand curves is never inflation. As Austrians and Friedmanites and even central bankers agree, inflation is always and everywhere a monetary event. Did the CARES Act send a monetary impulse through the domestic system? Yes. But it was an impulse, not a consistent expansion of the money supply. And a supply shock is not inflation. The same thing happened 1946-48.
Inflation requires that there be too much money chasing goods and services. There is no aggregate price increase that reflects inflation. There is no economic boom that reflects inflation. There is no loose expansion of credit that reflects an inflationary environment. Present inflation is a ghost created by media and recency bias.
And The Fed is chasing this ghost, spinning dials that aren’t actually attached to the true monetary system. And they actually know that those dials aren’t attached. They’ve been complaining about it since the 70s. That’s why they have to rely on the hopes and dreams of expectations theory, while in turn lying about their impotence to the media and the public.
Recall that in 1979 when Volcker took the reins of the inflationary speedwagon, the first thing he tried was constricting bank reserves. This had no effect, demonstrating for all the world that domestic bank reserves are not tied to the actual money supply in a meaningful way.
In July 1981 the FOMC met to discuss inflation despite the fact that the 81-82 recession had begun that month. Present day is apparently tough to see through a rearview mirror. They had failed at everything they tried and the markets had just overshot their interest rate targets and so they were a tad panicked. Boston Fed chair Frank Morris had this to say before the committee:
“Well, Mr. Chairman, all this conversation, or much of it, suggests to me that we ought to face up to the fact that we do not know how to measure transactions balances in our present society. We have overnight RPs, for example, that are used by a good many corporations as transactions balances, and RPs are not in M-1B at all. I really don’t think we will ever, from now on, be able to have a concept of a transactions balance in which we can have the same confidence we used to have in the old M1.”
Now to be fair, there wasn’t an economist on the planet who could in that day. Banking and money had evolved faster than our ability to conceptualize it. But that’s no excuse for today as we continue to suffer through a 16 years long monetary crisis. Greenspan reiterated this same problem multiple times during the 90s and 00s. And nothing was done about it.
So we have people in charge who cannot define money, cannot determine the money supply, and cannot measure transactions or credit, who we are supposed to trust can thus blindly navigate us through monetary minefields with policy tools that aren’t attached to anything in the real economy.
Fortunately this irrelevance also limits the damage they can do. And you have to admit they’re awfully good at cleaning up the messes the monetary system leaves on their doorstep. They’ve had a lot of practice at bailouts and bail-ins and emergency measures since 2007. If only they could be more than bystanders cum janitors.
re: “demonstrating for all the world that domestic bank reserves are not tied to the actual money supply in a meaningful way.”
No, there was a perfect relationship. That’s how I identified the FED’s money stock errors in 1979.
But the banksters didn’t like being reserve constrained. So, they lobbied until they got their way.
As I said: 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. The FED will obviously, sometime in the future, lose control of the money stock. May 8, 2020. 10:38 AMLink
Link: Daniel L. Thornton, May 12, 2022:
“However, on March 26, 2020, the Board of Governors reduced the reserve requirement on checkable deposits to zero. This action ended the Fed’s ability to control M1.”
No, the program ended some months later because it didn’t work, and in the meantime the bankers could’ve cared less. It affected them not at all. The central bankers, like you, didn’t see this, because you and them are operating on a paradigm that hasn’t reflected reality since somewhere around 1965.
The Fed was already beginning to admit they did not know what the money stock was and couldn’t control it, in the mid-70s, culminating in Mr Morris’s comments in 1981 that I quote above. Which puts you, in 2020, 45 years behind even the clueless central bankers, despite Greenspan repeating the same worries through his tenure.
Outside of meeting Basel requirements, reserves are irrelevant to the banking system. The Fed has made the mistake many times that reserves are important, including during the GFC when the reverse, *providing* reserves, proved to be just as ineffective as restricting them.
I hope your old paradigm works out well for you. It hasn’t for them.
re: ” I really don’t think we will ever, from now on, be able to have a concept of a transactions balance in which we can have the same confidence we used to have in the old M1.”
Reserves were driven by payments. And 95 percent of all demand drafts cleared through “Total Checkable Deposits”. In the G.6 Release, all the demand drafts drawn on CBs, CUs, S&Ls cleared through DDs – except those drawn on MSBs, interbank & the U.S. government.
AAA Corporates hit 15.49% in 1981. My prediction for AAA corporate yields for 1981 was 15.48%. You can verify that with Jim Sinclair, whose dad founded the OTC stock market.
“We are committed to achieving and sustaining…”
Inflation hit 9%. Where was the commitment? The FED got way behind the curve on raising rates. Virtue signalling is cheap.
They did not commit to the successfulness of their commitment.
Many years ago FED Chairman Alan Greespan said he didn’t have enough data to make rational decisions. Banker’s intuition is the rule, I suppose….
Remember the stagflationists?
Link: “Rethink 2%”
link to bit.ly
Contrary to the pundits, money is not neutral. It has been harmful.
Abolish money because it is harmful? Myself I do not want to be paid in turnips.
Frictionless financial perpetual motion requires that, income not spent is reintroduced into the economy, completing the circuit income and transactions’ velocity of funds (*circular flow*), thereby sustaining and promoting economic momentum. The utilization of savings has a positive economic multiplier.
So you are saying to abolish savings.
Lending by the banks is inflationary. Lending by the nonbanks is noninflationary, other things equal. It is much more desirable to promote prosperity by inducing a smoother and continuous flow of monetary savings into real investments than to rely, as we have done since 1965, on a vast expansion of bank credit (with accompanying inflation) to stimulate production.
Atlanta’s nowcast Latest estimate: 5.9 percent — August 24, 2023. That makes N-gDp too high.
As Dr. Philip George says: “The velocity of money is a function of interest rates” and “Changes in velocity have nothing to do with the speed at which money moves from hand to hand but are entirely the result of movements between demand deposits and other kinds of deposits.”
Link:
link to fred.stlouisfed.org
Link:
link to fred.stlouisfed.org
Debits to deposit accounts have accelerated.
To understand AD, just look at the widespread introduction of NOW accounts in the 1st qtr. of 1981.
The problem is that the lower income quintiles get hit first.
Can you explain some examples of these types of transactions: “ movements between demand deposits and other kinds of deposits”?
Asset price inflation is ill-considered. Asset price inflation breeds income inequality. Income inequality breeds crime.
It’s astonishing, but the FED’s technical staff doesn’t know a debit from a credit.
During the U.S. Golden Era in Capitalism the inflation rate was 1.4%.
According to Corwin D. Edwards, professor of economics, Ph.D. Cornell University, the U.S. Golden Age in Capitalism was driven by “increased money velocity which financed about two-thirds of a growing GNP, while the increase in the actual quantity of money has finance only one-third.”
I.e., the nonbanks grew faster than the banks, making the bankers jealous. That was the impetus behind the removal of Reg. Q ceilings. Yeah, the ABA is still running things. It’s the political economy. The Keynesian economists have achieved their objective, that there is no difference between money and liquid assets.
1) The Fed wants your money, but they can’t lift rates much higher, because the Fed
isn’t a stand alone mountain. Gravity, money flow, with Europe and Japan pulls the long duration down.
2) This week TNX high @ 4.362 breached Oct 17 2022 high @ 4.333, but closed @ below @ 4.233. The rise to 4.362 was at turtle speed.
3) US10 – DET10 is rising, breached a red flatbed cloud, into the 2021/2022 congestion area, but Its well below 2018 high when JP, then a rookie who wanted
to eradicate negative rates, cut rates after Xmas 2018 massacre.
4) The 10Y should be 7%/8%, but gravity Europe and Japan pulls it down.
5) Mortgage rates don’t care. They are above 7%. The gap between Non – Interest Deposits and bank loans is the second highest. Mortgage rates are 75% higher
than 10Y rates. Car loans are x3 times higher. C/C loans are x6 times. The banks lend less, cut cost, but get u on interest rates.
6) The CPI is down for COLA.
7) The Fed reduced its assets. That’s by itself lift rates.
Well there’s your problem, he’s navigating by the stars when everyone else is using GPS.
The whole thing is ridiculous. They keep printing more currency in order to service the debt because they have to put a wet rag on people’s spending or CPIflation will go to 12-15%. Do they intend to do that forever?? What do they think will happen when they stop? Do they think people will have forgotten about all the money printing?
This is a shell game of hide the debt. It’s a Global Debt Ponzi. Anyone who has his long term wealth in paper claims (which are mere claims, not assets), will end up getting boned. It is so obvious. How is it that so few can see it? Physical gold and silver are your friends, especially silver on sale at half of its all time high price still.
Captain, try to sell King George or 1kg silver or gold.
Never tried to sell gold or silver coins or bars. Easy to buy. Are you saying more difficult to sell?
Is gold and silver hard to sell? Do banks take it?
If true that everyone else, including you I suppose, is using GPS then I would have to assume that everyone else, including you, have made so many billions but if everyone is using the same GPS then there is no one left to take the other side of the transaction. To conclude I would say that there is no GPS especially in human interactions and that the Fed Head is correct in saying that they are navigating under clouds without being able to see the stars.
The FED rate has not altered inflation because the FED rate has been lower than inflation. So I would argue the FED has been stimulating the economy, but at a lesser intensity. Inflation simply self-corrected and the gullible believed in the magical powers of the FED.
They say that Santa Fe, New Mexico is the third largest art market in the world. It falls behind only Paris and New York.
I just watched The Big Short. I am convinced that New York is the largest gambling market in the world. Out pacing Las Vegas and Macao by a huge margin.
I believe the bets on equities far exceeds the purchase and sales of equities.
The
forex market is the largest casino on this planet.
Careful, you might change someone’s perspective typing stuff like that 🙂
The most amazing thing really is the entire world holding its breath when these central bank puppetmasters gather, meet or say a few words…
It’s like Stockholm Syndrome on steroids, this abusive relationship between a few thousand rich elitists and 8,05 billion debtslaves.
Or maybe I’m just cynical and numb from all the deception, hysteria, psy-ops and gaslighting…
We are all products of inculcation. Some have more resistance than others. From spirituality to politics there are those who try and propose a need for something other than God, and propose themselves being the mediator to Truth.
Please tell me why we need “god”. It’s delusional (like many human beliefs) to believe in an omnipotent being.
It is another common human trait to believe that there is nothing beyond one’s comprehension/understanding; nothing greater than oneself.
A person reading this may be regarded as an omnipotent deity by a small insect — able to smite, bring rain from on high, ‘create’ material from nothing (e.g. drop some crumbs of food in front of it). You might not feel you need monotheistic religion, but it seems like you would benefit from being more open-minded.
How about a no percent inflation rate! Unless my yearly raises cover the cost of inflation @2% inflation per year for 10 years. Then the purchasing power of my dollar has dropped by 20%…Inflation like taxation is theft.
More than that. It’s not linear, the 2% of the previous year also inflates by 2%. Every following year the same thing happens, so after 10 years you get 1.02^10 or 21.9% total inflation, not 20%.
The compounding is small at 2%, but at higher inflation rates it gets bigger. 10 years at 6% gives a total change of 79%, no 60%.
Exponential functions always run away.
I wish I could do those kind of equations in my compound inflation report. I have to do things the old fashion way. What is the equation for compound inflation???? Give me a math lesson.
It’s (1+i)^n where i is the interest rate and n = the number of years.
EG a compound rate of 10% for 3 years is as follows:
10/100 = 0.1 so 1+i =1.1
1.1 to the power of 3 is 1.331
1.1 x 1.1 x 1.1 = 1.331
So a $1000 compounded at 10% for 3 years would be $1000 x 1.331 = $1331.00
The goal should be 0% inflation.
To get inflation rate down to 2% from the current 25-80% would be a bit of a break. However, even at 2% accrued on top of the ludicrous prices everything is still unaffordable. The mushrooming depression has carved all support out from underneath the economy. So the inflation games will continue even faster.
Swirling down the drain is the only sure bet.
Steve, I totally see this missed by the financial community and the Fed. So, we get inflation to 2% after cumulative increases that led to products/services going up 25-100%.
For the life of me, I cannot understand this faulty thinking. It’s like these people have no concept of surviving day-to-day. They look at charts all day and totally missed the big picture.
“navigating by the stars under cloudy skies” is an odd thing to say. Does anyone agree?
Has he turned to astrology? Might as well since nothing else seems to be working. Or maybe that is his new way of saying he STILL really does not know how little he knows about inflation.
To his credit, he did not create the mess created by reckless government spending.
It means using dead reckoning because there is not enough information.
Originated by his speech writers. He saw it…questioned it….and then decided to say the hell with it and approve the oddly worded perspective.
Navigating by the stars under cloudy sky is always a tricky business. Having done it for years many years ago with a sextant on the oceans, I can tell you it requires a good voyage plan, a good dead reckoning track and then being ready to take stars sights as available and frequently not getting a good fix; every time then you came back to your voyage plan and dead reckoning on it till the next good star position, then course correction. To me this means they are stumbling through the night, have a voyage plan, are uncertain where they are, and will continue forward on plan to a clear position. An example may be, rapid interest rates are still flowing through, impact unclear, recession 5 months ahead, no clarity for course correction. Plus it sounds like they have economist and no navigators on their team. This means danger ahead. Good luck
I miss the guy who used to do astrological readings in the comments.
He did create the mess by creating the money to buy those bonds used to fund the stimulus. I didn’t get any stimulus, but I did get the inflation.
How about we move to a -.05%. Deflation and pay off our Debt and focus on the poor and lower middle class. Help those that suffer and over a long period of time lower the cost of housing.
And, end all non essential Gov. Projects and unneeded Gov. employees: Federal and State.
You should run for office David. You got more sense than most the morons in Congress and the Presidential idiots.
Just got back from a chain pet food store (Petsmart). Canned food that used to be under 50 cents, now 80 cents. Bagged cat food that I used to buy under 21 bucks in now 26.59 per bag.
I buy the kitty litter at Costco. That used to be 10 bucks and change and now 16.50 at Costco.
The calulations for inflation need to be done on a long term basis. So, if cat food goes 2% per can for the year and that’s good. How can you not look at the increase from 47 cents to 80 over a little bit longer period of time.
I’m a landlord and have to raise rents next year. 100-150$ per unit. I don’t have a choice when the government, stores and services are raising rates all the time too. The dollar’s buying power is getting destroyed and there is no negative feedback loop for prices. Only one direction and that is up.
Times are rough when you have to raise your rents to feed your cat. Oh the humanity.
Landlords in IL are significantly raising rents for several reasons: 1. Significant property tax increases. 2. Significant property insurance increases. 3. People can’t afford to buy a house so they are forced to rent. 4.During the pandemic there was a moratorium on rent. I think it was was 18 months or more. They can get away with it and get good renters as people who didn’t pay their rent during the pandemic are paying for it now. 5. Inflation. Costs of repairs and services (cleaning furnace, a/c dryer vent, carpeting, etc.) cost more.
Property tax in Illinois – government payroll, benefits and pensions shall not be denied!
you have no idea how demanding a cat can be! Do some research before posting. lol
I’m a landlord too here in Australia. We are raising the rent by 20% for a number of reasons. Government taxes and imposts hit our bottom line, that is one reason. Another is those same imposts hit other landlords and would be landlords too. That restricts supply as fewer rentals are built at a time there is a rental shortage and the government is importing record amounts of migrants. So same shit as your cuntry has but under the Aussie flag.
And how is aiming for 2% the same as the stable (0%) that is the supposed mandate of the Fed? Plus if they overshoot that 2% isn’t it only fair that they make up for it by going under 2% to stick to the trend line? Funny how that never happens.
Let’s just give more money to Ukraine. Ukraine is really far away, you see, so when we give them money, it’s unlikely to come back into circulation here (which is deflationary, and therefore ‘good’, as it counteracts inflation).
You people just don’t think about these things as clearly as I do.
/s
I cant listen to these people.
He committed to “moving sustainably towards 2pct” which is not quite the same as committing to 2pct.
In essence it suggests willingness to ease before we’re actually at 2pct, but when 2pct is clearly and surely in view.
Could be an important difference.
“Sustainable” means whatever it needs to to justify his next action.