Saturday, August 25, 2018

Fed Chairman Jay Powell's Nutty Theory About Price Inflation

.Kansas City Fed President Esther George with New York Fed President John Williams and Federal Reserve Chairman Jay Powel at Jackson Hole
By Robert Wenzel

Federal Reserve Chairman Jay Powell delivered a keynote speech yesterday at the annual global central bank conference in Jackson Hole, Wyoming.

During the speech, he made an astounding comment about price inflation. He gave the impression
that price inflation was not a concern because the Federal Reserve has stamped out price inflation expectations.

From his speech:
When longer-term inflation expectations are anchored, unanticipated developments may push inflation up or down, but people expect that inflation will return fairly promptly to the desired value. This is the key insight at the heart of the widespread adoption of inflation targeting by central banks in the wake of the Great Inflation. Anchored expectations give a central bank greater flexibility to stabilize both unemployment and inflation. When a central bank acts to stimulate the economy to bring down unemployment, inflation might push above the bank's inflation target. With expectations anchored, people expect the central bank to pursue policies that bring inflation back down, and longer-term inflation expectations do not rise. Thus, policy can be a bit more accommodative than if policymakers had to offset a rise in longer-term expectations.
In other words, he made the twisted logical claim that, even if price inflation rises a bit, price inflation won't rise because the Fed has "anchored" price inflation expectations.

I note he is making this absurd claim despite the fact that price inflation on an annual basis bottomed in early 2015 and has been climbing ever since and is currently well above the Fed's "target" rate of 2.0% at 2.8%. In the EPJ Daily Alert, I am conservatively forecasting the possibility of a rapid spike in price inflation to the 5.0% range within the next 6 to 12 months.

Consumer Price Index-Annulaized Price Inflation Rate (2008 to present)

Robert Wenzel is Editor & Publisher of


  1. And if you close your eyes, and click the ruby slippers 3 times, and think to yourself: "There's no inflation here, there's no inflation here", there'll be no inflation here!