r/Economics • u/JustARandomPerson902 • 18d ago
Why Fed's Powell still thinks high inflation is 'temporary' News
https://www.reuters.com/business/why-fed-chair-powell-still-thinks-high-inflation-is-temporary-2021-08-27/26
u/CrossfadeAMV 18d ago
Ok. But what else he can say at this point? Imagine that tomorrow he comes out and says after many months of documented denial "it is not transitory". Powderkeg explodes. Maybe right now the way he is going he will still reach a shitty end but it will take time.
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u/32no 18d ago
Everything he says is backed up by the data though. So he’s not just saying it because he has to. It’s also questionable whether he has to say it. He could moderate his language and away from the very clear cut “it’s transitory”, but he’s not doing that because all indications point otherwise
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u/GrotesquelyObese 18d ago
Also transitory and temporary are not interchangeable.
Temporary inflation would mean we are going to pay the same prices as before.
Transitory inflation means we are in a peak during inflation growth. Like how the stock market up ticks and then comes back down but still climbs.
Prices have been stagnant for a long time and things are moving up. We will probably never see the same prices as the “before times.”
If people are not prepared for increased costs all around, I think we are going to have a rough go of things come winter.
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u/hi_and_fuck_you 18d ago
Transitory is just a rhetorical word they specifically picked to distract people from the real meaning that is being conveyed which is that your money is going to be worth 20% less in 3 years.
If they literally said what is going to happen everyone's heads would explode with fear.
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u/FixBreakRepeat 18d ago
This really wouldn't be a terrible thing as long as wages kept up. We saw very little inflation over the last decade, so a couple years of high inflation wouldn't be crazy...
But while a lot of people have gotten raises over the past couple months, I think this is going to be a real problem for earners at the bottom 20%-50% and for people who didn't already own homes.
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u/Intellichi 17d ago
High inflation would be terrible for me and my family. I am not deeply in assets and have the expectation that the government will try to maintain the value of the dollar to a substantial degree.
I have not received any cost of living adjustments to my pay.
High inflation does not benefit society in general. It's not acceptable nor sustainable.
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u/Louisvanderwright 18d ago
Lol yes, wanna know how you lock inflation expectations in to the high end? Have the Fed Chair come out and say inflation is going to be high forever...
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u/chaosDNE 18d ago
The way I understood this in the Jackson hole speech was that the pandemic has caused low employment , and the recovery has cause a great demand . Assuming those to be true it follows that this would be transitory. You know all else equal. But I don’t think all else is equal. There are other things at play. I don’t think he is addressing them , because doing so would legitimize them further. What do I know , but that’s what I took away.
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u/FIicker7 18d ago
I think 16 years of easy money funneled into Corporations, big banks, and Wallstreet to fund stock buy backs and CEO bonuses are the root cause.
Apple CEO Brings Home $750 Million Bonus
https://www.voanews.com/usa/apple-ceo-brings-home-750-million-bonus
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u/danvapes_ 18d ago
It's also possible the Fed may not be capable addressing the concerns that you have hinted towards.
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u/FIicker7 18d ago edited 18d ago
This is the underlying issue. The Fed back in 2009 expected Congress and Obama to make policy decisions to Stabilize the economy. The Fed has limited tools and is doing the best they can with them.
Edit: Unfortunately the Tea Party had a meteoric rise in 2010 in Congress and have blocked most attempts.
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u/chaosDNE 18d ago
I am on the skeptical side, for sure. But was trying to look at the post from an unbias perspective so it doesn’t take an inappropriate amount of space in my skepticism. He said the word transitory, but in context ,he set it up to always be true or at least reasonable given the premise.
I think he highlighted wage and payroll inflation as being a risk of 70’s style inflation, but used that as a way to justify the target 2% rate (or continued purchasing. ) and didn’t lose the opportunity to assign this phenomenon on the general public willing it into existence. That’s all well and fine , unless you assume that they are incentivized to keep buying securities in order to prop up assets of leveraged counter parties . Which I admit is speculation, but pretty compelling none the less.
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u/KAZVorpal 17d ago
A better way to explain would be to say "these price increases are not inflation".
Inflation is, always and everywhere, a monetary phenomenon. Contextual price increases are not inflation. The harmful "covid" measures against the US economy will inevitably drive up costs, therefore prices, in many industries. But that isn't a form of inflation.
Inflation is caused by a change in the supply/demand balance for money shifting in favor of supply.
As an independent example: Let's say the price of oil doubles. That will drive up the price of production of most goods, causing many prices to rise. That isn't inflation. It's driven by something other than a fall in the value of the currency.
One way to see this is to note that those rising prices, because they are driven by suppl instead of demand, will probably reduce economic activity. The same number of available dollars are now faced with higher prices...so people buy less.
Certainly, there are plenty of reasons for prices to rise without it being driven by demand. Like the destruction of the supply chain by the security theater response to SARS-CoV-2 by the state.
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u/GammaGargoyle 17d ago
This is not true, there are two types of inflation, monetary inflation (increase in the money supply) and price inflation (CPI and other measures of prices).
Price inflation is what the Fed pays attention to. Monetary inflation has already occurred as seen in M2. What determines the actual value of a dollar is what you can buy with that dollar. As prices rise, your dollar is worth less. The cause of inflation doesn’t matter. Monetary inflation is usually a prerequisite for price inflation.
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u/KAZVorpal 16d ago
This is not true, there are two types of inflation, monetary inflation (increase in the money supply) and price inflation (CPI and other measures of prices).
The latter is only "inflation" in a clumsy, incompetent sense that impairs economic expression. Inflation gets its very name from the inflation of the money supply. What has happened is that incompetent fools have sloppily inferred that a common symptom of inflation — illusory price increases driven by the decline in the value of the currency — somehow is the inflation. Worse, they don't comprehend that other kinds of price increases exist that are not symptomatic of inflation.
And one example of how bad this sloppiness is arises when someone therefore wants the Federal Reserve to draw down the money supply, because sound market responses have driven up the real price of goods. That would be disastrous.
Price inflation is what the Fed pays attention to.
Actually, we're seeing an example of how untrue that is, right now:
The Fed is ignoring the situational price increases, saying those are not a reason to raise its lending rates and therefore contract the money supply strongly. This is because those are not inflation, in any real sense.
Monetary inflation has already occurred as seen in M2.
An increase in money supply is not automatically inflation. As I believe I said previously, inflation is a shift in the supply/demand balance of money, toward an oversupply. M2 can rise without inflation, as long as demand matches it.
What determines the actual value of a dollar is what you can buy with that dollar.
Actually, no. That just illustrates how hopelessly simplistic econometrics are. If what you buy with a dollar is reduced by an increase in the expense of production of goods, that is not the value of the dollar changing.
As prices rise, your dollar is worth less.
Nope. As the value of the dollar falls, prices rise. But the opposite is not automatically true, because there can be real-life causes for price increases. Essentially, the value of the dollar is staying the same, but the value of some important goods is rising.
It is only when the value of the goods is remaining the same, but the price of the goods is rising that you are seeing a likely symptom of inflation.
The cause of inflation doesn’t matter.
Ugh, what an absolutely sociopathic mentality. You shouldn't let econometric bureaucrats infect you with those ideas. Obviously, the cause of price increases is hugely important. If they signal a true rise in demand, then production needs to increase to match them. If they instead signal a decline in the value of the currency, then production must not rise to meet them, or else it will destabilize the economy.
This is why people despite Keynesians so much. "Where it goes doesn't matter, just get spending flowing" is a deranged mentality that shows ignorance of how the real world works. It's how we end up with things like stagflation, and even the great depression itself.
Monetary inflation is usually a prerequisite for price inflation.
Not in the clumsy sense you're using it, no. For example, double the price of oil, and prices will rise without inflation. It won't be driven by demand, but by cost of production. This will actually result in declining demand, as people cannot afford the higher prices. The result would almost inevitably be an economic downturn...even while the supply/demand curve shifts in the opposite of the inflationary direction. Demand for money would be rising, not falling. You end up with higher prices AND deflation.
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u/Kasadya556 18d ago
By temporary people seem to believe prices are going back down, which is not the case. The US inflation experiment has failed. Time to take away their money printer.
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u/DaveinTW 18d ago
Look at lumber, it's lost 50% over the last 3 months, if its rise was a monetary phenomenon then it would not have gone down at all.
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u/BioStudent4817 17d ago
These people think inflation is consumer goods is due to the Fed putting money in capital markets and not industries raising prices due to supply shortages from COVID-19.
Supply just suddenly dropped its not the statewide shutdowns, shipping container crisis during the pandemic peaks, or lack of workers due to covid and shutdowns /s
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u/MoralEclipse 18d ago
Go look at the graph of inflation since the introduction of monetary policy. Monetary policy is arguably one of the most successful economic policies ever. No idea why clueless people like you are on an econ sub.
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u/Kasadya556 18d ago
Successful at what? And who’s the beneficiary?
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u/MoralEclipse 18d ago
Controlling inflation, there is a reason basically every (possibly every) developed country utilises monetary policy.
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u/Kasadya556 18d ago
As far as I can see it appears that printing money is a hidden tax, stealing purchasing power. I can’t find any justification for it.
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u/GhostReddit 18d ago
Every developed country uses monetary policy because it's a lever of power. What government doesn't want to be in control of their money?
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u/21plankton 18d ago
As an institution tasked with stability the Fed seems to have done a good job. We are not experiencing deflation, nor hyperinflation in an economy that is seeing massive disruptions in employment as well as supply chain disruption. Economic fear is an enemy of stability. Tapering cannot start when Delta is peaking and all the ICUs are full. I appreciate that Powell is the voice of reason and backs it up with facts. The dollar is in a precarious position as the worlds continuing default currency despite our awful balance of trade. The fed needs to keep the economy stable until the pandemic wanes even if the consequence is that corporations and the megarich get richer. Not really a bad consequence considering all the alternatives.
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u/G13G13 18d ago edited 18d ago
That's not what he thinks. He knows hyperinflation is coming but will he tell the American people that? FUCK NO. He has so much gold stashed you don't even want to know.
Me being downvoted is the exact reason the fed and the government are able to lie and get away with it. Go read 'The Biggest Con' by Irwin Schiff and you will see how much they lie to us everyday with pages upon pages of proof. It's not a conspiracy, it's fact. Open your eyes.
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u/bioemerl 18d ago
You're being downvoted for asserting hyperinflation on top of surface level understanding of economics while basically anyone qualified on the topic thinks that hyperinflation concerns are still pretty low.
Only way I could see hyperinflation happening is if the world suddenly rejects the US dollar as a reserve currency and all of a sudden there are way more dollars than are necessary. That's not super likely either.
The money supply did raise sharply on the back of covid relief debt being issued, but that increase was months ago and inflation now is mostly being driven by shocks related to the economies of the world closing and opening thanks to the coronavirus.
You need to give an actually decent answer for **why** anyone here should think that hyperinflation is going to happen. So far you've just insisted that it will and told people to go read a book.
Seriously, you just said this.
It's not a conspiracy, it's fact. Open your eyes.
What do you think you look like?
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u/G13G13 18d ago edited 18d ago
I disagree. There are a lot of well known economists who foresee hyperinflation.
The dollar not being used as a reserve currency is very likely. United States is at the worst trade deficit in history and that's just what is being reported by misleading indicators (it is much worse). What happens when other countries dont hold as many dollars anymore because there's nothing for them to buy since we're not producing anything? The dollars come back to America and flood the country along with all the dollars that were printed. Don't forget, we're also at the same debt to GDP we were at during the Industrial revolution. The difference is back then we were actually producing, now we're not.
There's a reason the fed hasn't increased interest rates. If they increase them to even 1% the bubble will be pricked. Increase it to 2 and it's popped. They would much rather kick the can down the road and inflate the bubble even bigger. They're notorious for this ever since the creation of the fed.
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u/theerrantpanda99 18d ago
Who are the well known economists? What is available to replace the dollar as the world’s primary reserve currency? Why do you think the trade deficit is a problem for the United States?
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u/PaidByPutinBot123 18d ago edited 18d ago
Druckenmiller, Gunlach, Schiff, Luke Groman, all predicting falls to USD if USA prints for their unfunded liabilities. $100t in unfunded liabilities represent secular deficit spending never seen before.
A collection of currencies and gold. No one reserve currency will.ever occur again. World too globalized for just one.
Trade deficits dont matter if USA doesn't spend until secular inflation occurs. See first point as to when that will.happen.
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u/MoralEclipse 18d ago
Lol Schiff is a joke who has been preaching the same shit for decades to sell people gold. He is also not an economist.
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u/PaidByPutinBot123 18d ago
Included him for the props of predicting the housing bubble.
Yes, preaching the same shit, that now smart people like Druckenmiller and Gunlach are now agreeing with him. If you think Druck and Gunlach are not jokes, then Schiff can't be neither, because they believe similar things.
Schiff was first, doesn't make him stupid.
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u/theerrantpanda99 18d ago
Drunkenmiller can’t be too worried about the strength of the dollar, he just made bug buys into Airbnb and Marriot. If he really thought the US dollar was going to be trashed, he wouldn’t be spending so much in the hospitality and service sectors. He’s just trying to push up the value of his Bitcoin and Gold holdings.
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u/G13G13 18d ago edited 18d ago
The Chinese Yuan, they're working on a gold backed e-RMB and they actually already have oil futures contracts redeemable in gold. They've been buying billions of dollars of gold. They're also the number 1 producer of gold.
I stated why it's a problem, read again.
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u/bioemerl 18d ago
The Chinese Yuan
The currency with ACTIVE CAPITAL CONTROLS and a larger money supply than the USD is going to overtake the USD as a global reserve currency?
They've been buying billions of dollars of gold.
They may as well be buying billions of dollars of bitcoin. There isn't enough gold to back the modern economy, and the amount of gold you have is literally irrelevant.
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u/G13G13 18d ago edited 18d ago
The argument "there isn't enough gold to back the modern economy is a fallacy. At this price of gold you would be correct, that is why the price of gold will go up.
How is the amount of gold you have irrelevant if you're building a gold backed currency? It might not matter if you decide to do what America did when they only backed portions of the dollar. That is exactly WHY it matters though, the currency needs to be backed in FULL.
Please don't tell me you're trying to compare Bitcoin and Gold, I don't understand why you even said that lol.
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u/bioemerl 18d ago edited 18d ago
At this price of gold you would be correct, that is why the price of gold will go up.
This is as arbitrary as anything else - gold would be valued purely because people want it rather than its functional use. It's basically bitcoin at that point, or the USD.
It's comparable to bitcoin because nobody can print bitcoin. It's a scarce resource just like gold is, but hilariously way more suited to the application since it's truly decentralized and easy to transfer.
If you think bitcoin is a joke, gold is even more of one.
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u/G13G13 18d ago edited 18d ago
You can't print bitcoin but the total supply of btc being capped is irrelevant bc there is no supply cap on the amount of cryptos that can come out to compete with btc. There are dozens of cryptos coming out every week and lots of them are better than btc in every single way. Total supply is irrelevant for btc. If it was the only crypto then yea that would be great. There is nothing stopping another crypto from taking its crown. There is WAY too much wrong with bitcoin and if you think gold is a bigger joke than bitcoin you don't understand the function of MONEY. Bitcoin is not MONEY. That is a debate for a different time, even though the current bitcoin bubble is going to be a part of the economy collapsing.
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u/theerrantpanda99 18d ago
The price of gold is irrelevant because the size of the global economy exceeds all the available gold on the planet. There’s a reason why no major currency, including China’s, used the gold standard. Furthermore, given the state of China’s economy, it’s history of currency manipulation and the fact all its wealthy neighbors are scared shitless of their expansion into the South China Sea, no one is in a rush to switch reserve currencies.
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u/G13G13 18d ago edited 18d ago
The reason they stopped using the gold standard is because they learned they can control the country with central banks and printing currency. There's a reason you go to jail if you don't pay your taxes (which is against the constitution by the way). Executive order 6102 confiscated peoples gold and made it illegal to own. They knew the power of gold and with gold they can't maintain control. When we were under a FULL gold standard we saw more economic expansion then ever before in terms of %.
I'll say it again, the global economy doesn't exceed all the available gold on the planet. At this price of gold yes that is true but if the price of gold goes to 15K+ it will easily be a backing to a reserve currency. China will do it, and when they do come back to the post. Look up the China gold backed futures contracts. They know what has to be done to be on top of the world.
https://goldalliance.com/blog/is-china-planning-to-attack-the-dollar-with-a-gold-backed-yuan/
Mises once said "The nationalists are fighting the gold standard because they want to sever their countries from the world market and to establish national autarky as far as possible. Interventionist governments and pressure groups are fighting the gold standard because they consider it the most serious obstacle to their endeavours to manipulate prices and wage rates. [...] People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty."
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u/in4life 18d ago
This all sounds crazy… and I believe you’re correct.
People are banking on continuing to send our inflation away for goods. We can point to, hopefully, temporary supply chain issues to excuse current costs, but the writing is on the wall that global trade has an exit plan from the USD.
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u/G13G13 18d ago edited 18d ago
Yep, we're on borrowed time. The fact my original comment was downvoted proves how blind the average even economist (/r/econmics viewers) doesn't know the fed is lying to you and so is the government. These are the 'professionals' as well, imagine what the average person thinks! Media outlets like CNBC, etc. solidify what the fed says and it makes it even more believable.
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u/iKickdaBass 18d ago
What’s your evidence to support price increases of 50% per month?
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u/G13G13 18d ago
Prices are already at 4% which is a MAJOR misleading lie. Prices don't have to go up to 50% for there to be hyperinflation. For example, let's say all your basic goods that you had to buy to survive stayed the same price but decreased in size by 50%. The price doesn't reflect this inflation but your wallet def does. Food companies all over the country are already doing this. Notice your cereal boxes getting bigger but the bag inside smaller? Your chips have more air in them? This is hyper inflation disguised.
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u/iKickdaBass 18d ago
hyperinflation
"What Is Hyperinflation? Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month."
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u/G13G13 18d ago
yes... 50% in purchasing power is essentially the same as 50% in price. If your $1 only buys half as much as it did before then it's still 50% inflation even if the price hasn't changed. The price can stay the same but the product becomes 50% smaller, that's hyperinflation of 50%.
In our current situation in America, prices are going up and products are becoming smaller. It will soon reach 50%.
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u/Richandler 18d ago
Typically it's because they look at data unlike most other pieces saying otherwise. For instance, car and housing inventories are stabilizing if not rising.
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u/Daleftenant 18d ago
This article has a bad case of headline dissociation.
The headline reads as if its criticising Powells position, and the use of quotes around the word 'temporary' suggests the article is going to take the opposing view.
Yet the article lays out, rather well, why inflation continues to be transitional.