That’s His Story and He’s Sticking to It!

Despite mounting evidence to the contrary, Federal Reserve Chairman Jerome Powell stuck to his “transitory” inflation narrative during testimony before the House Financial Services Committee. That’s his story and he’s sticking to it!

Just the day before, the consumer price index (CPI) came in hotter than expected – again.  The data has come in higher than expected every month this year. Month on month, the CPI was up 0.9%. The 5.5% year-on-year increase was the biggest monthly jump since 2008. But during his Wednesday trip to Capitol Hill, Powell continued to insist rising prices are transitory.

Powell said inflation “has increased notably and will likely remain elevated in coming months before moderating.” He continued to insist we’re really only seeing significant price pressures from a few sectors such as the auto industry and they will abate.

It’s all kind of the same story. It’s a shortage of semiconductors. There’s also very high demand for various reasons,” Powell said in response to a question from Rep. Madeleine Dean, R-Pa. “It’s just a perfect storm of high demand and low supply and it should pass. Unless we think there’s gonna be a multi-year, many-year shortage of used cars in the United States, we should look at this as temporary. We very much think that it is.”

More significantly, Powell once again said it’s too early to talk about tightening monetary policy Although the economy has made progress, the Fed’s benchmark of “substantial further progress” remains “a ways off.”

“Our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete,” Powell said.

When asked what he means by “substantial further progress” in employment, Powell equivocated, saying “it’s a very difficult thing to be precise about.” He went on to explain, “It really is a very broad range of things.” But Powell promised the Fed “will provide lots of notice” before it considers tightening policy.

The Fed chair also reassured the committee that if high inflation persisted and was threatening to uproot inflation expectations, “we would absolutely change our policy as appropriate.”

But Powell gave no indication of just how long inflation has to persist before it’s no longer transitory or how high it needs to get before the Fed actually does something. The central bank has indicated it’s comfortable letting inflation run “moderately” above the 2% target for “some time.” Rep. Anthony Gonzalez asked Powell, “How long is ‘some time’?”

The best answer Powell could come up with is “it depends.”

“Right now inflation is well above 2%. … The question for the (Federal Open Market) Committee will be, where does this leave us in six months?”

Yes. That’s the question, Jerome. What is the answer?

It’s important to note that despite all the talk, the Fed isn’t doing anything. Rates remain at zero. Bond buying continues unabated. The extraordinary, inflationary monetary policy is rolling along even as CPI runs hotter and hotter.

Peter Schiff said all of this talk about “transitory” inflation coming from the Fed is nothing but a ruse.

I think it knows that it’s not transitory. It just knows not to admit that because it also knows that it can’t do anything about it.”

Powell will stick to his story as long as he possibly can. He’s really got no choice. He can’t do what it would take to actually fight inflation. It would require interest rate hikes and monetary tightening that would crush whatever economic recovery we’ve had. At this point, the story is all he’s got.