It’s been said that you can’t please everyone all the time. But can you fool enough people some of the time? That’s Jay Powell’s game in a nutshell. He’s got the world believing the Federal Reserve is out here printing gobs of money and sending a tidal wave careening throw the whole economy (stock market first). Nope. Monetary policy is little more than getting people to believe this is what’s happening.

For a little while this year, he was on his game. Remember May 17? That particular Sunday night Chairman Powell joined Scott Pelley who Jay knew would go along with the ruse; no one ever challenges these people. Instead, Pelley let the central banker uncork one lie after another.

Figuring out why he’d do something so dastardly is easy; times were bad, really bad. In a deflationary situation such as that, the Economics textbooks says, in no uncertain terms, central banks commit all hands on deck to sell its counter before the deflation sets in too far. Inflation expectations are the model antidote.

So, in the middle of May 2020, as the initial QE stuff wasn’t doing it by itself, Powell became the first top Federal Reserve policymaker to explicitly cop to “digital money printing.” That’s what he actually said. And he said knowing full well that saying it would make headlines around the world after it had already lit up social media.

Both of those things proved to be actually true.

The digital money printing, not so much. Digital creation of bank reserves, sure, but that’s no fine line distinction without a difference. The simple truth, as Jay knows, is that bank reserves are not money.

Didn’t matter because it was said this was a game-changer. The Fed had finally taken off its gloves and wasn’t going let traditional boundaries stand in the way. The circumstances called for drastic changes, to which Powell more than obliged. He made his stand and made it plainly.

The problem, of course, is that these weren’t drastic changes at all; they were barely changes insofar as what truly counts. As I wrote back in July just as Inflation Hysteria #2 was getting wound up:

Therefore, Powell didn’t actually change the game when he appeared on 60 Minutes so much as apply a new standard to the same sport. His act wasn’t truly different, this recklessly talking up money printing. The situation is so dire any chance for expectations demanded he take extreme steps. Not in printing legitimate and useful money, which he can’t, in lieu making you think that’s what he’s doing, what he will do and do forever.

And it’s quite predictably falling apart.

That’s all this stuff ever is: if you and everyone else believe they are recklessly printing, then that’s really his job. Can Jay fool enough people for just long enough to get out of the monetary/financial/economic jam?

No, no he cannot. Summer slowdown instead and all its deflationary consequences having now consumed autumn, too.

As we’ve spent this week documenting, this Inflation Hysteria #2 is, well, little more than hysteria predicated on the assumption the public remains darkly gullible as to the Fed’s antics. In the bond market already, no chance; that ship sailed long, long ago. Inflation expectations have yet to equal Inflation Hysteria #1 (which, I’ll point out for the fifth time this week, was never anything more than hysterically overreaching).

What about the public? I have a tremendous amount of sympathy for the casual observer, the laypersons who quite naturally simply want to go about their lives as they see fit. Who really wants to follow this inflation, digital bank reserve nonsense closely? Just tell me what’s happening!

Instead, most people absorb the noise of financial media and accept that they’re being given appropriate, accurate interpretations (though less so these days than in years past). If “everyone” says inflation from money printing, there’s no frame of reference to argue against. Must be true.

And yet, when it comes to the 2020 digital saturnalia Jay didn’t end up finding that many takers. There was an initial burst into consumer inflation expectations – right in May. The University of Michigan’s survey, for instance, showed one-year inflation expectations among American consumers had dropped to 2.1% during April (so much for that much QE), but then popped to 3.2% coinciding with Powell’s performance stunt.

In other words, there was a measurable effect to his aggressive posturing; not just UofM, in all sorts of consumer surveys including FRBNY’s (though more muted).

It didn’t last.

First of all, 3.2% isn’t all that much in the short-range survey panels. More importantly, that’s the best/highest this year. It never got any better!

And now for the just-released December 2020 estimate, UofM reports that consumer expectations have sunk back to 2.3%. Nevermore than recent times (the other hysteria) buying at most a few months. Real money printing wouldn’t be so quickly and easily overcome.

How bad is that? In a data series that dates back to 1978, 516 months, only twenty-four of them (4.6%) have been equally low or lower. Rare disinflationary posture. So much for the digital bank reserves.

Longer run inflation expectations, according to Michigan’s researchers, haven’t turned out any better – just like in market-based indications. The 5-year future inflation expectation pictured by the UofM survey was just 2.5% in December. A much smaller bump in May that faded breezily away lasting only as far as September.

Shrillness and volume aren’t substitutes for rational analysis of solid data backing a coherent, realistic worldview. The media and the hardcore inflationists in the face of facts merely restate their incorrect premises – this money printing garbage – more forcefully as if that would change the course of future experience.

The public at large doesn’t really know what the Federal Reserve does, as policymakers like it, many content to think that, sure, lots of money printing. While maybe thinking this, they absolutely are not seeing the necessary consequences of such a method in their views anywhere. And that’s simply because it never happened.

People know this is true; they just don’t know why. They don’t yet appreciate this widespread corruption. 

THE LIE

THE TRUTH