Economic Nonsense Is Extremely Well Anchored In Fantasyland, And Not Just At The Fed

Today, Fed Chair Jerome Powell addressed the House Financial Services Committee. Let's look at his speech point by point.

Powell Says Factors Driving Inflation Should Be Temporary

Yesterday in Mercy Me! Inflation Expectations Are No Longer Well Anchored (posted this morning before Powell's speech) I made this mocking statement" "The only thing that's clearly well anchored is Fed groupthink silliness."

I was certain we would hear the term "Well Anchored" again, and Powell did not disappoint.

Semiannual Monetary Policy Report to the Congress

Today, before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C., Chair Jerome H. Powell gave his Semiannual Monetary Policy Report to the Congress

Powell: Conditions in the labor market have continued to improve, but there is still a long way to go. Labor demand appears to be very strong; job openings are at a record high, hiring is robust, and many workers are leaving their current jobs to search for better ones. Indeed, employers added 1.7 million workers from April through June. However, the unemployment rate remained elevated in June at 5.9 percent, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year. 
Mish: Not long ago, economists thought that 5% unemployment was about as low as it could get without boosting inflation. 5.9% was not at all considered "elevated". Now the goal, if indeed there is one, appears to be 3.4%, where it was prior to the pandemic. But this discussion presumes one believes the unemployment rate. I don't and neither does Powell and on that basis he is essentially correct.

PowellInflation has increased notably and will likely remain elevated in coming months before moderating. Inflation is being temporarily boosted by base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month calculation. In addition, strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind. Prices for services that were hard hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy.
Mish: Again, this is mostly accurate but it also ignores clear bubbles which Powell did not mention at all. The word "bubble" does not appear in his speech, on purpose. 

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