What does the Fed think about inflation?

The Federal Reserve’s view on inflation is basically a “clear-cut” one.

But many times the market interprets it very differently.

Let’s look at Powell’s speech on November 30, the last speech before the December Fed meeting; the theme is to discuss the U.S. inflation outlook, as well as the direction of the U.S. economy and monetary policy.

At the beginning of his speech, Powell said that he wanted to provide a “report on progress in restoring price stability to the U.S. economy” – you see, we ordinary people say the simple word “inflation control”. You see, we ordinary people say “control inflation” this simple word, in Powell here, hard into the “recovery of the U.S. economy, price stability progress” so a long list of words, this is the typical political discourse.

What do you mean by “political discourse”?

The so-called political discourse is the listener sounds very comfortable, very excited, but in fact there is no real meaning, the real practice is even the opposite of the speech content of the kind of language.

I am not polite to say that probably more than 1/3 of the nouns you hear in the speeches of governments are political words – of course, in the speeches of the leaders of some countries, probably 80% or even 90% of the nouns, are political words.

In the face of inflation, Powell put himself, and his colleagues, in the shoes of the hard-pressed American masses, “My colleagues and I are tangentially aware of the significant hardships that hyperinflation is causing, straining budgets and the purchasing power of paychecks.”

 

Don’t tease, Powell and his colleagues, you go to check their income and wealth levels, now the United States inflation, their lives are not much at all, but politicians, no matter how they engage in special offerings, how to live in isolation from ordinary people, but in all speeches, always to emphasize their own suffering with the people, deep experience of mourning people’s livelihood, this is the political discourse.

In what follows, Powell admitted that the current U.S. inflation rate is too high, emphasizing that the Fed’s main concern is core PCE inflation (inflation index after excluding food and energy), and furthermore, he divided U.S. core inflation into three components to be discussed.

According to Powell, core U.S. commodity inflation has soared over the past year or so because “unusually strong demand met supply disruptions caused by the epidemic,” and has nothing to do with the Fed’s one-year printing spree in 2020 of the sum of the past 200 years of money printing, and with “supply chain problems are now easing” and “fuel and non-fuel import prices have fallen”, this sub-item is no longer too worrying.

But at the turning point of inflation, housing inflation tends to lag other prices because of the slower pace of lease resets,” meaning that U.S. home prices have started to fall and rents will eventually fall as well, but probably not until sometime next year.

This is because the Fed’s increased interest rates have a profound impact on residential home mortgages, which in turn are directly related to U.S. home prices. The meaning of Powell’s passage is to boast that the Fed has raised interest rates several times in the past, allowing the U.S. real estate uptrend to turn around, and rent inflation is rapidly declining, so that U.S. housing service prices will soon also decline significantly next year.

Next, Powell focused on starting to discuss core service inflation in addition to rent, which includes a wide range of services from health care and education to things like haircuts and hospitality, with Powell emphasizing that “since wages constitute the largest cost of providing these services, the labor market is key to understanding this category of inflation.”

Powell acknowledged that the U.S. labor market participation rate is less than it was before the outbreak.

Part of the participation gap reflects workers who are still out of the labor force because they have neocon pneumonia or suffer from “long neocon,” but a recent study by Federal Reserve economists found that the participation gap is now largely due to excess retirements.

Because the new crown of pneumonia poses a significant threat to the lives and health of older adults, in addition, gains in the stock market and rising home prices during the first two years of the epidemic contributed to an increase in wealth that may have helped some people retire early.

Look, the reason why there are so many excess retirements is because of rising home prices and stock prices, and it’s all because of me, the Federal Reserve!

Here comes the most politically correct quote of all.

To be clear, strong wage growth is a good thing. But in order for wage growth to be sustainable, it needs to be consistent with a 2% inflation rate.

Powell was trying to say that you, the common people, are increasing your incomes so fast that it’s causing the current core service inflation fever, so I have to suppress that trend – but in political speak, it becomes “in order for wage growth to be sustainable… …”, if you were an average American, wouldn’t that sound a lot more comfortable?

Next, Powell went on to summarily take credit.

Growth in economic activity has slowed, well below its long-term trend, and that needs to be maintained.

Bottlenecks in commodity production are easing and commodity price inflation appears to be easing, which must also be maintained.

Housing services inflation will likely keep rising into next year, but if inflation in new leases continues to fall, we will likely see housing services inflation begin to decline later next year.

Finally, the labor market, which is particularly important for core services inflation other than housing, is showing only the first signs of rebalancing, with wage growth still well above levels that are consistent with 2% inflation over the long run.

Despite some signs of improvement, we still have a long way to go in restoring price stability.

The impact of monetary policy on the economy and inflation has an uncertain lag, and the full effect of our rapid tightening policies to date has yet to be felt.

Restoring price stability may require keeping policy at restrictive levels for some time.

History warns us not to ease policy too soon, and we will stay the course until the great success is achieved.

 

You see, our rate hikes over the past year have had an effect, and inflation is bound to be contained in the future, but we may need to continue to raise rates now, and my colleagues and I will be “firmly committed to restoring price stability” as you wait to see what the “hysteresis You just wait and see the “lagging” data to show our ability!

 

Above, is the main content of Powell’s speech on November?

Half a month after the speech in late November, December 14, the Fed’s rate meeting resolution, we have all seen

1) The Fed announced a 50bp rate hike, with the benchmark rate returning to the 4.25-4.5% range, in line with market expectations.

2) The economic forecast for 2023 was lowered and the unemployment rate, inflation, and core inflation forecasts for 2023 were raised.

Obviously, after the rate meeting, the Fed’s statement was essentially no different from the last one, and exactly in line with Powell’s speech at the end of November – if there was a difference, it was the Fed members’ dot plot, which gave a tendency for the benchmark rate to be higher than 5% at the end of the rate hike. In the words of many brokerage research reports

In fact, this was originally what Powell gave in his speech on November 30, but the market still took this as new and as a market negative, so almost all major asset classes turned down, and so, some financial self-publishers started to declare that

The United States will thus fall into recession, the main line of the market in 2023, is bearish U.S. stocks……

I don’t know how to comment on these views, I can only say that these people neither understand the U.S. economy, nor the U.S. stock market, they will only move “in a big chess game”, and then let the global market to follow his Will go……

Let the market test if they are right!

 

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