Federal Reserve Chair Powell's five measuring sticks on inflation aren't holding up very well

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There are weaknesses in each of Fed Chair Jerome Powell's inflation five planks that, if not thwarting it altogether, at least undermine the position.
Federal Reserve Chairman Jerome Powell testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, at the Hart Senate Office Building in Washington, DC, U.S., September 28, 2021. Kevin Dietsch | Reuters

Federal Reserve Chairman Jerome Powell, during his August speech at the annual Jackson Hole symposium, laid out five reasons supporting his view that the current run of high inflation will go away. So far, they aren't holding up very well. In fact, there are weaknesses in each of the five planks that, if not thwarting it altogether, at least undermine the Fed's inflation position and give markets and consumers plenty to watch. "In the period ahead, wage growth outside low-paid high-touch sectors and indicators of longer-term inflation expectations … will play an important role in determining whether the Fed shifts more decisively in a hawkish direction or ends up being vindicated," Krishna Guha, head of global policy and central bank strategy for Evercore ISI, said in a recent note. "The risk for the Fed is that even if the transitory story is ultimately right, it could face a crunch point

(end this year/early next?) when these tests too come under stress," he added. At Jackson Hole, Powell mentioned "inflation" 89 times in a speech titled "Monetary Policy in the Time of COVID." While he acknowledged that inflation is "elevated," he also said the conditions around it are "dynamic." He then listed five criteria he would use to assess how things are going, and wrapped up the passage by insisting that the economy would trend back to full employment and inflation would return to the Fed's 2% goal. Powell's five-point inflation checklist goes like this: Lack of broad-based pressures; lower moves in high-inflation items; low wage pressures; tepid inflation expectations, and long-lasting forces that have kept inflation low globally. Since the speech, the data has pointed mostly to continuing and in some respects escalating price…
Jeff Cox
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