Powell Disses Inflation and Ignores Questions From Congress About Leverage

Mish

Today was day two of Congressional testimony by Fed Chair Jerome Powell. It was another day of market-soothing talk.

Tight Lipped Powell

In day two of Congressional testimony, Powell was Tight-Lipped on Bank Dividends and Leverage. 

  • Federal Reserve Chairman Jerome Powell deflected lawmakers’ questions on two items that are at the top of Wall Street’s wish list: whether the Fed will drop restrictions on bank dividends and if it will keep giving lenders a break on capital demands due to Covid-19.
  • In back-to-back hearings in the Senate yesterday and House today, Powell refused to budge in the face of repeated queries -- mostly from Republicans -- about temporary measures the Fed implemented to strengthen the financial system during the pandemic.
  • Powell offered similar versions of the same quote, “That’s something that’s under consideration right now.” Basically saying: You’ll know the answer when we tell everybody else.

What About Jobs?

What About Overheating and Inflation? 

Yesterday and today, Powell Pushed Back on Concerns of Prices Rising, Overheating.

“Our policy is accommodative because unemployment is high and the labor market is far from maximum employment,” he told the House Financial Services Committee on Wednesday, in his second day of testimony to Congress. “It’s true that some asset prices are elevated by some measures.”

Powell pointed to the example of car prices rising because of a chip shortage and supply-chain constraints in the tech industry.

“That doesn’t necessarily lead to inflation because inflation is a process that repeats itself year over year over year,” he said, rather than a one-time surge.

In multiple questions from lawmakers about the risk of the economy overheating -- with additional government aid and continued support from the central bank -- the Fed chair reiterated his view that there’s a long way still to go before returning to pre-pandemic strength.

During the hearing, Powell voiced confidence that the Fed would succeed in lifting inflation and getting it to average 2% over time.

“I’m confident that we can and that we will, and we are committed to using our tools to achieving that,” he said. “We live in a time where there is significant disinflationary pressures around the world and where essentially all major advanced economy’s central banks have struggled to get to 2%. We believe we can do it, we believe we will do it.”

Powell said that “it may take more than three years” to reach that goal but vowed to update the Fed’s assessment on the issue every quarter. ​

Market Soothing Talk

If the Fed had a clue, it would recognize economic bubbles as a sigh of inflation.

If you expected Powell would be different than all the group-think Chairs who preceded him, you thought wrong.

Yesterday, I noted The Fed Soothes the Market Today With More Easy Money Talk

Powell repeated the same message today and the DOW closed at another all-time high.

How Long Can This Go On?

Note the Very Unusual Move in Mortgage Rates vs the 10-Year US Treasury Yield in which mortgage rates ought to be 75 to 100 basis points higher than they are.

The Fed via QE asset purchases is doing a far better job manipulating mortgage yields lower than it has done controlling yields on long-term treasuries.

My question on February 14 still stands: How Long Before the Fed Tries to Manipulate Long-Term Rates Lower?

Mish

Comments (55)
No. 1-10
Roger_Ramjet
Roger_Ramjet

And still, after all of these years of hearings, not one politician is willing to ask the most basic and fundamental question: why is 2% inflation a good thing? Please let us all know. Whoever asks that question and demands a straight answer will be a patriot and a hero, in my eyes.

CzarChasm Reigns
CzarChasm Reigns

Cluelessness abounds:

they just call it "operational error".

cknoas
cknoas

it is all trump fault. Period.

Casual_Observer
Casual_Observer

Electronic money is infinite.

bluestone
bluestone

You can tell what central banks are reacting to by what they want to influence. Powell's response to the deflationary clearing of debt, is to want higher inflation without higher rates. So I imagine from now on Powell will start to make more and more soothing comfort about "transitory factors".

Volcker for example, certainly -did not beat inflation- (although you might think he did from the press) because he didn't restore a historical 2% inflation rate. What Volcker did was preside over an organised devaluation of the dollar because you never get back the debasement of the 10%+ inflation years. Yes he didn't let the dollar collapse to zero would be a better assessment. He reined in the horse but he didn't bring it back to the stable.

From Powells point of view (or anybodies for that matter), would a devaluation of the dollar solve a lot of problems and I think the answer is yes. I would also point out that there is a lot of room for the dollar to safely go to. I know i said this before, but the dollar has been as low as 2.10 against gbp and it wasn't even all that dramatic. American holidays were cheaper, US exports were cheaper, nobody I saw at the time (2007) was burning dollars to keep warm.

Johnson1
Johnson1

The stock markets are awesome. The last 11 years have really benefited people who have aggressive portfolios. Truly amazing.

Then add in cryptos too.

Wow

Greggg
Greggg

Powell asserted that the FED has ample time “as inflation dynamics do not change on a dime.”

To the Fed chairman, I say this: YOU ARE WRONG FOR THE GLOBAL DYNAMICS ARE CHANGING. All the world’s central banks failed to achieve the coveted 2% inflation target because the Chinese were busy EXPORTING DEFLATION AROUND THE GLOBE. On January 1, 1994, the Chinese DEPRECIATED the YUAN by 50%, to 8.7 from 5.8 to the U.S. DOLLAR. The power of the Chinese labor force was unleashed to export to the world. Foreign money rushed in to China and along with the ASIAN TIGER growth excess capacity sent global prices into a tailspin.

This is what the FED and its beloved PHILLIPS CURVE failed to comprehend for the model was based upon domestic data.

KidHorn
KidHorn

The FED will always say inflation is under control. And their policies are working.

WarpartySerf
WarpartySerf

Jay and Janet ..... Two oligarchic Frankensteins - maybe it's time to break out the pitchforks and torches for these two predators......

Jay should take his personal $50 million plus , and Janet her $14 million plus- and join their buddies in New Zealand.

Just leave, will you ?


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