Fed Says Inflation Might be Higher and More Persistent Than They Expect

What, Me Worry?

The Fed has its eyes on inflation and essentially says "What, me worry?"

The Fed met today on interest rate policy. Today's FOMC Statement is the Same Old Same Old as the following snips show.

Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent.

The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. 

Statement Tracker Barely Changed

The above Statement Tracker image from the WSJ.

Q&A Session and Tweets

The News Conference, Tweet discussion, and articles on the News Conference were more entertaining.

In the News Conference the WSJ noted this admission. 

Supply-chain bottlenecks have driven inflation to higher levels than many economists expected this year, and those readings have raised “the possibility that inflation could turn out to be higher and more persistent than we expect,” said Fed Chairman Jerome Powell at a news conference after Wednesday’s meeting.

Further Progress Needed

#POWELL: It's not time for us to be thinking about raising rates. We are looking at asset purchases and judging how close we are to "substantial further progress" and tapering after that. #FED

— Kitco NEWS (@KitcoNewsNOW) July 28, 2021

Some Ways Away

By Definition, if the US dollar is off 14bps since the Fed statement, the central bank was NOT hawkish.

— Lawrence McDonald (@Convertbond) July 28, 2021

A Word About Outcomes

*POWELL: EXPECT ACCOMMODATIVE STANCE UNTIL OUTCOMES ACHIEVED

still unclear what these outcomes are

— zerohedge (@zerohedge) July 28, 2021

Shades of Nancy Pelosi: We have to have the outcomes they want before we know what they are.

Peter Schiff Provides Amusement

Mercy!
At this pace cars will be $200,000 in eight years or so.

I am always amused when Schiff goes off on his nonsensical hyperinflation rants. https://t.co/gXpua08xOg

— Mike "Mish" Shedlock (@MishGEA) July 28, 2021

A Word About Projections

Nothing like projecting current conditions forever into the future. 

Regardless, I agree with Schiff that inflation is understated and also that gold is a good investment.

Home Prices Rise Another 1.7% in May

For discussion of inflation and real interest rates please see Home Prices Rise Another 1.7% in May But Economists Say It's "Not Inflation"

For discussion of stagflation possibilities, please see The Stagflation Threat is Very Real but Congress Holds the Key

Agreements aside, projecting current conditions forward for years is nonsense. So is Schiff's Understanding of QE as noted in Will the Fed Balance Sheet Get Spent into Circulation Causing Inflation?