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In the press conference, Powell blamed tariffs and said the BLS overestimated jobs.

If you missed the press conference (click to play), no one asked Powell about health care inflation or the PCE, but the reporters did press him on inflation and jobs.

QE Resumes

“The the committee has determined that reserve balances have retuned to ample levels”. Apparently, ample isn’t good enough so the Fed is blasting out more QE and more free money to banks.

“Reserve management purchases [QE] will will be $40 billion in the first month and may remain elevated for several months.”

I will comment more on QE in a following post.

Jobs and Unemployment

Powell: “I should mention on the data that we are going to need to be careful in assessing, in particular the household survey data. There are very technical reasons about the way the data are collected, both in inflation and labor. The data may be distorted and not just volatile, but distorted because data was not collected in October and half of November.”

Financial Times Reporter: “Why did the committee decide to move today rather than January?”

Powell: …”Payroll jobs averaging 40,000 per month since April. We there there is an overstatement by about 60,000 so that would be negative 20,000 per month.”

Inflation

“The evidence is growing that services inflation is coming down and that is offset by increases in goods. And that goods inflation is entirely in sectors where there are tariffs. More than half the source of excess inflation is goods, tariffs.”

Powell refused a question on the tariff issue before the Supreme Court. “We’re not legal commentators.”

“With tariff inflation there is the announcement, and then they start to take effect. It takes some months. Goods have to be shipped, it can take quite a while before the full effect. If there are no new tariff announcements, and we don’t know that, inflation from goods should peak in the first quarter or so. We haven’t been able to predict this with any precision, no one is.”

Powell estimated 9 months for the full impact.

Hoot of the Day

“There’s nothing happening with rates going up that suggests concern about inflation in the long term. Surveys are all saying that the public understands our commitment to 2 percent and they expect to see it back there.”

Do you believe that? The more important question is how does it matter?

Consumer expectations do not set inflation. Even Fed studies show that.

Powell continues. “So why are rates going up. It has to be something else. It must be an expectation of higher growth or something like that. The big move towards the end of last year had nothing to do with us.”

Mercy!

Bloomberg: “You just mentioned the public is expecting you to get back to two percent. But American are overwhelmingly citing high prices. Inflation is their number one concern. Can you explain why you are prioritizing the labor market which seems relatively stable, instead of their number one concern.”

Powell: “We have a network of contacts that is unmatched. So we hear loud and clear how people are experiencing costs, really high costs. A lot of that is just embedded higher costs due to higher inflation id 2022 and 2023.”

Politico: “This is the third time you’ve cut this year and inflation is around three percent. So, is the message you are trying to send, that you’re OK with where inflation is now, as long as people understand that at some point you want to get back to two percent? Because inflation is relatively stable where it is.”

Powell: “The surveys show we are committed to two percent inflation. But it’s a complicated, difficult and unusual situation. Job creation may actually be negative. The labor market has significant downside risks. The story with inflation is that if you get away from tariffs, it’s in the low twos. So it’s really tariffs.”

Back to Jobs

ABC Reporter: “Why is job growth so much worse than official data?”

Powell: “This isn’t particularly controversial. There’s been something of a systematic overcount. We think it’s about 60,000 a month so job 40,000 growth could be negative 20,000.”

Powell really misses the mark here: “If there were big layoffs, you would expect continuing claims to go up. So, it’s a little bit curious.”

Well it’s, not a bit curious. Continuing claims are not rising steeply because people have exhausted all of their unemployment insurance benefits.

Inflation Expectations Yet Again

On September 12, 2025, I noted Consumer Sentiment Sours in September, Inflation Expectations Rise

Year-ahead inflation expectations held steady at 4.8%, unchanged from August. Long-run inflation expectations moved up for the second straight month to 3.9% in September.

So Powell is in fantasyland. But he’s lucky in a sense because expectations are irrelevant.

Inflation Expectations Don’t Matter

Every FOMC meeting the Fed Chair, currently Jerome Powell, makes a fool of himself with nonsensical discussions on inflation expectations.

How can they matter? If you do think they matter, then answer this simple Q&A.

Consumer Inflation Expectations Q&A

• If you think the price of rent will jump next year, will you rent two houses now to beat the rush?
• If you think the price of rent will fall next year, will you hold off renting until rent falls?
• If you think the price of medical care will jump next year, will you have two operations now to beat the rush?
• If you think the price of medical care will fall next year, will you hold off on a needed operation?
• If you think the price of a vacation will jump next year, will you have two vacations this year and none the next?
• If you think the price of a vacation will drop next year, will you have no vacations this year and two the next?
• Will you stop eating? Eat more?
• If you car breaks down will you fix it twice? Wait until next year?

OK, maybe you wait for a sale to buy a coat. But you probably don’t by two. And if your coat rips, and you need one, you may not wait at all.

Businesses Inflation Expectations

Grocery stores can’t do anything at all, for obvious reasons.

How many cars can dealers fit on their lots? And what if consumers don’t buy?

Other than a few month’s inventory, assuming storage space, but at a cost and risk, businesses cannot do much either. If they do it’s a one-time impact of pushing supplies forward. Then what?

Fed Study Agrees

No study should be needed to prove the logic of what I just stated. However we do have a study, and it’s by the Fed.

Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)

Please consider Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) by the Federal Reserve.

Mainstream economics is replete with ideas that “everyone knows” to be true, but that are actually arrant nonsense.

The direct evidence for an expected inflation channel was never very strong. Most empirical tests concerned themselves with the proposition that there was no permanent Phillips curve tradeoff, in the sense that the coefficients on lagged inflation in an inflation equation summed to one.

Finally, even if one is willing to entertain the idea that in some vague, mushy sense concern over costs and demand by individual firms facing fixed prices leads to a dependence of aggregate inflation on expected inflation, we are still left with the conclusion that short-run expectations should be the ones that are most important.

One might also be uneasy about policymakers’ relying too heavily on the assumption that inflation’s long-run trend will remain stable going forward so long as measured long-run inflation expectations do. Even if every one of my preceding arguments is judged by the reader to be completely unconvincing, it nevertheless remains the case that we have nothing better than circumstantial evidence for a relationship between long-run expected inflation and inflation’s longrun trend, and no evidence at all about what might be required to keep that trend fixed (beyond that it might involve keeping actual inflation from moving up too much above two percent on a sustained basis).

[Mish note: The last two paragraphs are a direct criticism of Fed policy as practiced by every Fed chair and people dismiss these reports without reading. The next paragraph is a hoot as well.]

Or would you justify the view that expectations “matter” by pointing to the inflation experience of the 1960s and 1970s, even though that period provides no actual evidence that workers or firms tried to boost their wages or raise their prices in anticipation of future price or cost changes?

Health Care – The Question Not Asked

With that bit of Fed nonsense out of the way, no reporter asked about health care.

I have crunched the numbers and they are not pretty.

The Fed’s preferred measure inflation is the Personal Consumption Expenditures (PCE) price index.

The PCE puts a much higher weight on health care than the CPI. And health care costs are soaring.

I discussed Obamacare in my post How Much Will 4.5 Million Florida Residents Pay for Obamacare in 2026?

Florida has over ~4.7 million residents enrolled in ACA exchange plans, 97% of whom are currently subsidized.

A 64-yr old couple earning $90,000/yr would go from paying $637/mo to a jaw-dropping $3,176/mo…or FIVE TIMES AS MUCH FOR THE SAME POLICY. That’d be $38,000/YR IN PREMIUMS ALONE, or 42% OF THEIR GROSS INCOME.

The KFF foundation estimates an average 114 percent increase, so I don’t doubt the numbers presented, or the rationale that Florida will be worse than average.

More importantly, to the PCE, Medicare and corporate healthcare costs are soaring.

The average rate increased for both are about 9.25 percent.

Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible

On December 8, I commented Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible

Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.

I expect a rise in the Health Care weight in the PCE. I also expect a net 1.5 percentage point increase in PCE inflation in 2026 due to health care.

These estimates stem from health care price hikes across the board (Medicare and corporate plans), not counting the huge ACA impacts.

The Fed’s PCE inflation target is 2.0 percent. If I am in the ballpark, health care alone rates to take up 1.5 percentage points of that target, again, not counting Obamacare!

Unless jobs collapse, and they easily can, the Fed is going to struggle to justify rate cuts. And if they do cut, the most likely reason will be jobs. It’s not a good place for the Fed.

Click above link for details and the health care math.

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