Richmond Fed President Thomas Barkin Is Not Convinced About Rate Hikes

Tom Barkin Is Not Convinced

Barkin Quote Regarding Next Rate Hike Meeting

I could imagine many different outcomes based on whether you can convince yourself that inflation is starting to settle, or you convince yourself it’s not — and you convince yourself that this was a blip that is sort of largely behind us, or you’re convinced that this is a continuing situation,” he said at a roundtable with reporters at the University of Richmond. 

The above from Bloomberg

About Convincing

The Fed routinely convinces itself regarding economic models that do not work and never did. 

The Fed was convinced that inflation was transitory. It wasn't. 

The Fed presidents are convinced about asinine models such as the Phillips Curve and Inflation Expectations despite the fact that Fed research shows neither model works.

Inflation Expectations are Crashing

On August 8 2022, the New York Fed noted that inflation expectations were crashing.

I accurately commented Inflation Expectations are Crashing. So What? It Doesn't Matter.

So What? Inflation Expectations Are Nonsense

Inflation expectations are a ridiculous concept. Two independent Fed research papers accurately make that conclusion.

Please consider Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) by the Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board.

The paper accurately concluded "What little we know about firms’ price-setting behavior suggests that many tend to respond to cost increases only when they actually show up and are visible to their customers, rather than in a preemptive fashion."

Fed Studies Debunk the Phillips Curve

Both studies were done by Fed staffers.

Yet, Fed Chairs Janet Yellen and Jerome Powell did not believe the Fed's own study.

If you feel a need to gag I can help.

Janet Yellen Accepts Financial Security Award

If Inflation Expectations Mattered

Inflation Expectations vs Year-Over-Year Inflation Measures Long Term 2021-07

If inflation expectations mattered, the above chart would not exist.

From 2013 to 2021 inflation expectations averaged well over three percent. Even with the Fed pumping hard with QE, the Fed could not get measured inflation over two percent!

It wasn't really lack of inflation of course, but rather how senseless economists measure inflation. Factor in home prices and asset bubbles and there was plenty of inflation.

Elastic vs Inelastic Demand

  • Elastic items in the CPI total only 19.59%.
  • Inelastic items total 80.41%.

People will not rent two homes if they perceive prices will rise. Nor will people stop paying rent and wait for declines in they believe prices will fall.

The same applies to buying food, gasoline, insurance etc. And home prices are not even directly in the CPI. 

This is why inflation expectations theory is total nonsense.

Second Fed Study Concluded Inflations Expectations Theory is Nonsense

Also, consider A Fed Economist Concludes the Widely Believed Inflations Expectations Theory is Nonsense.

The Fed study has some amusingly accurate comments regarding belief in failed models.

It is far, far better and much safer to have a firm anchor in nonsense than to put out on the troubled seas of thought. John Kenneth Galbraith (1958).

Few things are harder to put up with than the annoyance of a good example. Mark Twain, The Tragedy of Pudd’nhead Wilson (1894)

Tom Barkin is not convinced. Would everything be OK if he was?

I'm Convinced

I'm convinced the Fed consists of collective bunch of clueless charlatans who are constantly convinced of the wrong things.

Convince me I'm wrong. 

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