No Surprise, Hysteria Wasn’t A Sound Basis For Interpretation

What gets them into trouble is how they just can’t help themselves. Go back one year, to early 2018. Last February it was all-but-assured (in mainstream coverage) that the US economy was going to take off. The bond market, meaning UST’s, was about to be massacred because the overheating boom would force a double shot down its throat.

Not only would safety instruments like UST’s have to contend with the unemployment rate, and therefore wage-driven inflation just ahead, the Federal Reserve would have to get more aggressive to head off the worst parts of what Economists call an overshoot.

On March 1, 2018, Chairman Powell still new to his job appeared before the US Senate Banking Committee. It was his first Humphrey-Hawkins required testimony, a commitment many were using to judge the character and thinking of Janet Yellen’s replacement. When he was done, everyone, and I mean everyone, said he had been hawkish, fitting the hysterical inflation narrative perfectly.

Two days before, Mr. Powell testified in front of the House Financial Services Committee how inflation was his biggest concern. To the assembled Senators, he quite purposefully started by walking those comments backward. Remembering his Greenspan, Powell remarked:

We don’t see any strong evidence yet of a decisive move up in wages. We see wages by a couple of measures trending up a little bit, but most of them continuing to grow at two and a half percent. Nothing is suggesting to me that wage inflation is at a point of accelerating. I would expect that some continued strengthening in the labor market can take place without causing inflation.

So far, so good. His assessment here was accurate. There was, even at the end of February 2018, amidst all the craze, no evidence for an inflationary shift in the US economy let alone one so pronounced it would force radical changes in major factors.

Unfortunately for the Fed Chairman, he wouldn’t leave it at that.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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