I hear ya Dave! So what is the FOMC selling to investors? Three rate cuts in 2024. Really? Yes we all know that a Dot is merely the estimate that a Fed person makes on a given day and it can can will change if data show that Dot is wrong. I love what you say here. "To adopt a policy stance that would carry a higher risk of rising inflation seems foolish and a risk to the Fed's credibility." Amen. What separates True Powell Believers from sceptics is assessment of where inflation is now and where it goes next.
Neither the markets (e.g., yields on long-term Treasuries) nor any consensus forecast of long-term inflation foresees a 2% inflation rate coming in the foreseeable future. That would seem to imply a collective judgement that the is not yet on track to achieve it's long-term goal. To adopt a policy stance that would carry a higher risk of rising inflation seems foolish and a risk to the Fed's credibility,. Philip Chao's concluding remarks about prospective prices are spot on. Powell needs to reiterate his "keep at it" mantra1
This is good stuff Kathleen. I wish I was there with you. ‘Keep At It” has been Chair Powell’s mantra. He has been very consistent that 2% (core PCE) inflation is what the Fed’s target and the Fed is strongly committed to stay the course until the “job is done”. Just about every press conference, the Chair repeats the recognition that the negative impact inflation has especially on the lower waged population. One thing the Chair, thus the FOMC, is very conscious of is not to pivot too soon (the Arthur Burns effect) and results in a return of inflation and has to raise rates again to contain the resurgence. The long and variable lag from the impact of restrictive policy on the economy is slow and bumpy. A case can be made that the base effect may reverse next year in favoring reflation other than disinflation. This is just math. The robust Q3 GDP and the initial report of record spending for Black Friday weekend and cyber Monday, it appears consumers remain healthy all be it with increasing credit card usage. This is not a sign of an economic slowdown or malaise. That’s right, for as long as the US remains in a tight labor market, consumers will consume and simple supply and demand tells us prices are not likely to come down when spending is healthy.
Philip - Thank you for this excellent and thoughtful response. As closely as you watch the Fed and central banks I am encouraged to see that you can still see the case for being prudent, not pivoting too soon. One of my favorite economists, Robert Brusca, who also has a column on Substack has made the same point you make on long and variable lag dynamics could feed into a base effect that reverses in the new year, thereby favoring some reflation rather than disinflation. You also put a spotlight on the labor market which is still quite tight. All the more reason next Friday's jobs report will be so closely watched in markets - and by Fed.
I hear ya Dave! So what is the FOMC selling to investors? Three rate cuts in 2024. Really? Yes we all know that a Dot is merely the estimate that a Fed person makes on a given day and it can can will change if data show that Dot is wrong. I love what you say here. "To adopt a policy stance that would carry a higher risk of rising inflation seems foolish and a risk to the Fed's credibility." Amen. What separates True Powell Believers from sceptics is assessment of where inflation is now and where it goes next.
Neither the markets (e.g., yields on long-term Treasuries) nor any consensus forecast of long-term inflation foresees a 2% inflation rate coming in the foreseeable future. That would seem to imply a collective judgement that the is not yet on track to achieve it's long-term goal. To adopt a policy stance that would carry a higher risk of rising inflation seems foolish and a risk to the Fed's credibility,. Philip Chao's concluding remarks about prospective prices are spot on. Powell needs to reiterate his "keep at it" mantra1
This is good stuff Kathleen. I wish I was there with you. ‘Keep At It” has been Chair Powell’s mantra. He has been very consistent that 2% (core PCE) inflation is what the Fed’s target and the Fed is strongly committed to stay the course until the “job is done”. Just about every press conference, the Chair repeats the recognition that the negative impact inflation has especially on the lower waged population. One thing the Chair, thus the FOMC, is very conscious of is not to pivot too soon (the Arthur Burns effect) and results in a return of inflation and has to raise rates again to contain the resurgence. The long and variable lag from the impact of restrictive policy on the economy is slow and bumpy. A case can be made that the base effect may reverse next year in favoring reflation other than disinflation. This is just math. The robust Q3 GDP and the initial report of record spending for Black Friday weekend and cyber Monday, it appears consumers remain healthy all be it with increasing credit card usage. This is not a sign of an economic slowdown or malaise. That’s right, for as long as the US remains in a tight labor market, consumers will consume and simple supply and demand tells us prices are not likely to come down when spending is healthy.
Philip - Thank you for this excellent and thoughtful response. As closely as you watch the Fed and central banks I am encouraged to see that you can still see the case for being prudent, not pivoting too soon. One of my favorite economists, Robert Brusca, who also has a column on Substack has made the same point you make on long and variable lag dynamics could feed into a base effect that reverses in the new year, thereby favoring some reflation rather than disinflation. You also put a spotlight on the labor market which is still quite tight. All the more reason next Friday's jobs report will be so closely watched in markets - and by Fed.