Powell’s Pivot to “Pain” but No Gain: Triggering the Coming Recession
Jay “The Inflation We Caused Is Transitory” Powell finally did it.
On Friday, the Fed chair finally mustered the courage to say that he is going to do the job he has been hired to do: the Fed will not “pivot” to cut interest rates until inflation slows meaningfully and persistently—even if the stock, bond, and housing bear markets become much worse and the economy goes into recession.
Powell’s Speech Translated
Below we provide key quotes from Powell’s Jackson Hole speech, along with our honest translations:
The Federal Open Market Committee’s (FOMC) overarching focus right now is to bring inflation back down to our 2 percent goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. The burdens of high inflation fall heaviest on those who are least able to bear them.
“Overarching focus” means that stock prices, housing prices, employment, and economic growth are minor concerns for the Fed compared to their goal of trying to bring inflation down from the recent 8.5 percent level to their arbitrary 2 percent level (which cuts the dollar’s value by 50 percent in thirty-four years). The dangers of inflation that Powell highlights are very real.
Other dangers he didn’t mention include how the inflation the Fed creates also causes the boom-and-bust business cycle, destroys scarce capital resources, lowers overall living standards, and increases the size and power of the government. But we can only expect so much clarity from the Fed, of course:
Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.
“Sustained period of below-trend growth” means recession. “Softening of labor market conditions” means rising unemployment. “Some pain” means lower stock prices, lower housing prices, less wealth, more joblessness, lower living standards, more bankruptcy, more poverty, and more misery. It’s highly unusual for a politician or bureaucrat to admit they intend to cause pain, so Powell’s message should not be taken lightly.
The US economy is clearly slowing from the historically high growth rates of 2021, which reflected the reopening of the economy following the pandemic recession.
It also reflected the Fed’s incredibly irresponsible and aggressive policy in response to covid, when it increased the monetary base by 60 percent, which helped increase the money supply by 40 percent. This caused the high and persistent inflation we have now. While th
Article from Mises Wire