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‘Nuanced’
If Jerome Powell was concerned about the criticism he garnered last week for failing to pound the table on the counterproductive nature of easier financial conditions associated with rallies in financial assets, he didn't show it Tuesday.
The Fed expects 2023 to be a year of significant disinflation, he said, in closely-watched remarks for an event at the Economic Club of Washington D.C. He also appeared to double down on the idea that the Fed has succeeded in tightening financial conditions, e
Not that the algos care. So why should we??
I am struck by the binary nature of the ongoing labor shortage-inflation debate. Either we let wages adjust for the lack of labor supply and suffer inflation, or we resolve the labor supply issue by squashing demand and thus inflation. Seemingly no where is it mentioned that perhaps corporations must live with higher wage costs after they’ve been suppressed for so long, and live with lower (more normalized) margins and earnings, without contrbuting to inflation pressures by feeling compelled (entitled?) to pass through labor costs in their prices. Maybe we need to transition from “soft landing” to “fair landing.”
My three cents…
1) Powers that be and Powell want a higher USD for foreseeable future.
2) Powell et FOMC are quite pleased with themselves with degree of monetary tightening they’ve achieved, and are content to proceed with nondramatic modest rate increases till eventual pause, thereby letting investment world (us) figure the rest out in interim…
The forgotten policy lever is QT. I have yet to see any reference to slowing the pace or pausing it.
Mr H awhile back replied to me that there’s never going back for the Balance Sheet: they’re all content to have the government support (specific) private/commercial actors/banks through public money (obfuscated by “oh it’s just loans to ourselves”).
I believe Powell’s missing an opportunity to reduce inflation psychology without resorting to blunt measures like interest rate hikes: just sound like you mean it!
Unfortunately when China comes fully online and if the invasion in Ukraine again threatens commodity/supplies then Inflation will spike and he’ll say “We couldn’t have known”
Oil was up close to 5% today.
I wonder if Powell is looking ahead to the coming debt ceiling standoff as a factor in Fed policy.
Could the Fed be quietly assenting to higher liquidity now in anticipation of tightening liquidity to come – as the Treasury’s General Account dwindles, perhaps?
I know that normally, lower TGA means higher bank reserves, but does that hold when the Treasury is prevented from being a net issuer of bills/notes?