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Fed Watch: Inflation Worries Grow As Biden Mulls Reappointing Powell

By Investing.com (Darrell Delamaide/Investing.com)Market OverviewJul 19, 2021 04:48AM ET
www.investing.com/analysis/fed-watch-inflation-worries-grow-as-biden-mulls-reappointing-powell-200592169
Fed Watch: Inflation Worries Grow As Biden Mulls Reappointing Powell
By Investing.com (Darrell Delamaide/Investing.com)   |  Jul 19, 2021 04:48AM ET
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The Federal Reserve’s wall of denial about inflation has started to show cracks. Chairman Jerome Powell acknowledged in congressional testimony last week that inflation was running higher than policymakers anticipated and they would not hesitate to “adjust” monetary policy if it starts to run away.

But he reiterated his conviction that price increases are transitory, due to a reopening of the economy with supply and labor shortages.

Lawmakers from both parties grilled Powell on inflation after the June consumer price index released on Tuesday showed a 5.4% jump on the year, the highest since 2008 and higher than the forecast of 5%. Month-on-month, the increase was 0.9% against forecasts of 0.5%.

Transitory Argument Becoming Less Defensible

The questions about Fed policy are arising as the discussion of Powell’s future starts to get some traction. While economists overwhelmingly believe President Joe Biden will follow tradition and reappoint Powell as chairman, uber-liberal Robert Kuttner predicted last week that Biden will name someone new.

Powell’s term as chairman expires in early February, and the White House generally names the new chairman several months ahead of time so the Senate can confirm the choice. Kuttner, who is editor of The American Prospect, was the first to report that Janet Yellen was being considered for Treasury Secretary.

Senator Sherrod Brown of Ohio, the Democratic chairman of the Banking Committee, sharply criticized Powell at last week’s hearing for what he considers lax regulation that has allowed banks to become more powerful. Senator Elizabeth Warren, the influential former presidential aspirant, chimed in with the same critique.

Yellen, former chair at the Fed, evaded a question from a television interviewer last week about reappointing Powell but said she thought the Fed has done a good job.

Of course she does. By keeping asset purchases going full blast and interest rates near zero well after the crisis is over and the economy is rebounding strongly, Powell is doing exactly what she wants him to do, which is exactly what she would do.

Fed independence is looking more like a fiction as Powell dutifully follows the lead of his former boss and the members of the Federal Open Market Committee toe the line. What inflation?

The producer price index, a leading indicator of where consumer prices are going, surged 1.0% on the month in June and 7.3% on the year. The Beige Book, which collects anecdotes from contacts by the 12 regional banks with local businesses, once again indicated a majority of those expect price pressures to continue for some time.

The evidence, in short, indicates that Powell’s insistence that inflation is transitory is becoming less defensible. Even if these high readings abate as the base effect of depressed prices a year ago fades, to call a mismatch between supply and demand that could last many months transitory begs the question.

Richmond Fed chief Thomas Barkin told the Wall Street Journal that it’s still too soon to consider reducing the Fed’s monthly bond purchases from the current level of $120 billion. The employment to population ratio, which was 61.1% in February 2020 before the pandemic struck, was still only 58% in June and needs to get solidly above 59% before policymakers can discuss tapering, he says.

James Bullard, head of the St. Louis Fed, indicated the time is near to start tapering bond purchases. “I don’t need to get going tomorrow, but I think we’re—I think we’re in very good shape for this,” he said in an interview.

Central bank policymakers in other countries are less hesitant. The Bank of Canada cut its bond purchases by C$1 billion a week in April, to C$3 billion (USD$2.4 billion), and last week said it will cut a further C$1 billion (USD$784 million) a week.

Michael Saunders, an external member of the Bank of England’s Monetary Policy Committee, said last week that the British central bank should take action to curb inflation and suggested he would vote to reduce bond purchases as soon as the meeting early next month.

It marked a turnaround for the dovish policymaker and came as David Ramsden, a deputy governor and member of the MPC, also said he was worried about inflation after Britain registered a 2.5% increase on the year in June.

The two policymakers say they disagree with Governor Andrew Bailey, who continues to insist the bank is right to leave policy unchanged.

Fed Watch: Inflation Worries Grow As Biden Mulls Reappointing Powell
 

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Fed Watch: Inflation Worries Grow As Biden Mulls Reappointing Powell

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Comments (14)
Steven Jacobs
Steven Jacobs Jul 22, 2021 2:30AM ET
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Let me explain something very easy. People are SICK of hearing about stupid inflation. Get a new story line ok?
Todd Gray
Todd Gray Jul 20, 2021 4:25PM ET
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I've read some stuff from the UK stating the delta variant does not produce near as severe complications as alpha variant. I think that's why they really push the transmissibility angle more than the major complications angle. Medicine has become an overtreatment mecca. I have several personal experiences where they wanted to have me do weeks of therapy,... for a silly pinched nerve in my back, and experienced tantrum like pressure to undergo elective surgery. The RN's & PA's are all in on coercing excess treatments as well. They abuse people in the attempt to gain more profit per patient.
Steven Jacobs
Steven Jacobs Jul 20, 2021 12:20AM ET
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Only a Bank owner wants higher interest rates. Any monkey asking to pay higher interest is just that a monkey.
Josh Harvey
Josh Harvey Jul 19, 2021 11:00AM ET
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Jay Powell belongs in prison
Aazam Khan
Aazam Khan Jul 19, 2021 10:42AM ET
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Economy is far from recovery and since Delta variant has arises which will firther steuck the econony. I think Powell is doing a very good job and probably should start tapering anywhere near next year beginning.
Steven Jacobs
Steven Jacobs Jul 19, 2021 10:42AM ET
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Agreed
AIM Investor Journal
AIM Investor Journal Jul 19, 2021 10:23AM ET
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I'm hearing extremists on one side saying deflation is coming and those on the other saying rampant inflation is taking hold. It's becoming increasingly difficult to call this through all the noise. Current inflationary pressures are based on figures from 1 year ago, when the US economy was in the middle of it's worst recession since the Great Depression. Q2 2020 saw the greatest slump so in theory these inflationary pressures should show signs of evening out this quarter if the Fed's stance is proven correct. Markets look to be deflating in anticipation of tightening and the USD strengthen day by day but I wonder how long that will last.
MD BELLA
MD BELLA Jul 19, 2021 10:23AM ET
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hi🇧🇩🇧🇩🌺
Meru Pet
Meru Pet Jul 19, 2021 10:22AM ET
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inflation worries, therefore oil goes down... Covid can be convenient...
Doug Birthyume
Doug Birthyume Jul 19, 2021 10:18AM ET
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There is NO Labor shortage JOE!!! You created a No-Work ethic UNLESS they get premium wages EVEN Entry-Level Jobs!! Crash imminent thats why I sold ALL of my Stocks and bought BONDS!!!
Benjamin McIntire
Benjamin McIntire Jul 19, 2021 10:18AM ET
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Shush
Tom Jones
Tom Jones Jul 19, 2021 10:18AM ET
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Silly statement.
Meru Pet
Meru Pet Jul 19, 2021 10:16AM ET
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is it gonna go further down if they increase the interest rates 🙄 ?
Ivo Wagner
Ivo Wagner Jul 19, 2021 10:09AM ET
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What nobody can explain is how buying stocks, bonds and mortages helps the labour market.....
JAMES CUNHA
JAMES CUNHA Jul 19, 2021 10:09AM ET
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very good question!  I am still trying to figure that out.  I know that the Fed buying treasury bonds has an indirect effect by creating more liquidity in the currency.  When you have too much liquidity, however, the currency begins to diminish in value.
Ju Rodriguez
Ju Rodriguez Jul 19, 2021 9:28AM ET
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They're not fooling anyone. They're making themselves look like fools at the country's expense. This is the worst administration in US history.
Bill Pulak
Bill Pulak Jul 19, 2021 7:51AM ET
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Powell has become a politicized puppet! what inflation? then... okay there is inflation but it's transitory? next.....oops we should have moved on this sooner
Musah Issaka
Musah Issaka Jul 19, 2021 7:51AM ET
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please
Tom Jones
Tom Jones Jul 19, 2021 7:51AM ET
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Nah, look at the inflation calcs. Much of it is based on new and used autos and travel. As I’m not in the market for an auto and don’t plan on travelling via air, I’ve barely noticed any inflation.
Stephen Fa
Stephen Fa Jul 19, 2021 7:21AM ET
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1970s here we come again. Where's my disco ball?
Christian Gustafson
Christian Gustafson Jul 19, 2021 5:08AM ET
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Biden is not POTUS.
Andrew Wark
Andrew Wark Jul 19, 2021 5:08AM ET
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TRUMP WON! Audit all 50
Nathan Worthington
Nathan Worthington Jul 19, 2021 5:08AM ET
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um nah he didn't. sorry
Edward Psilocybin Lister
Edward Psilocybin Lister Jul 19, 2021 5:08AM ET
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No, President Harris is pulling the strings behind the scenes
 
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