Like many of you, I watched Fed Chair Jerome Powell deliver his Jackson Hole speech this morning. It was short (though longer than last year’s) and mostly predictable. I wrote this post last week, noting: I think it’s pretty easy to anticipate what Powell will say at this year’s gathering. We’ve made substantial progress. But there is more work to do. We are firmly committed to brining inflation all the way back down to 2 percent. We’re not going to declare victory and go fishing.
The economy has been pretty remarkable in terms of holding off a recession. But make no mistake, Powell isn't going to stop anytime soon until we get one and force nearly 2 million people out of work despite no evidence of a wage price spiral. All he's doing with at least one or two more rate hikes end of the year is making bondholders richer. The 2 year is over 5% as we speak. And yes I agree, the 2% inflation is too extremist and I do think the US needs a higher inflation target.
What is this obsession with 2 percent all about. Where does this number come from?
Is the idea that if GDP growth is around 2% then inflation should be around there also? But if GDP is growing at a higher rate, doesn't that then warrant a higher target inflation?
Further to Stephanie's diplomatic and deliberately restrained comments on Chairman Powell's recent speech I would like to add a few more relevant comments.
It should be clear to all of us by now that the objective of the deficit hawks in the Fed ACTUALLY IS to raise unemployment, increase personal and business bankruptcies and to weaken those parts of the economy where the general public and main street live and transact. The deficit hawks are partially attaining that objective.
It looks obvious to me that fighting inflation is just a convenient pretext for the Fed and it's Chairman, although they like most people would no doubt prefer low inflation to high inflation over the long term.
Inflation is however being successfully fought by the Biden administration and by the EU through direct action for example by increasing supply from alternative oil and gas sources (US strategic petroleum reserve releases and increased US and global fracked (mostly) gas and LNG supplies) and by reducing oil and gas demand (energy conservation and more renewable power plus more coal fired power especially in Europe as Russian oil and gas supplies to Europe wind down). China's manufacturing powerhouse has also come back online thus relieving many shortages that arose from the recent pandemic.
Similarly Ukraine via the mechanism of the Grain Deal with Russia was recently able for many months to export their agricultural commodities in large quantities following Putin's messianic invasion, thus relieving some of those associated global commodity shortages. Russia has been a big exporter of those same commodities thus helping to unwind some of their own (Putin's) damage.
Spain even successfully managed to impose price controls on profit gouging corporations thus reducing that major source of inflation at least in that country. In most countries wage increases have not kept pace with inflation so this has had a major deflationary effect.
A truly major oil and gas supply shock potentially worse than the two Middle East oil supply shocks of the 1970's (firstly OPEC's huge oil price increases in 1973 following the Yom Kippur War and later the Iranian Revolution in 1979) appears to have been successfully averted primarily by the US, the EU and by many other global energy exporters. All of this came so soon after that other huge economic shock – the global Covid-19 pandemic that was defeated mainly through national central bank currency issuance on a unprecedented scale.
Stephanie and the MMT fraternity through their educational and publicity efforts and through the soundness of the economic theories themselves have no doubt been at the heart of these major successes, even if they have often felt like tiny voices in a storm of misinformation and lies.
Bill Mitchell's blog posts on Japan show how inflation can be restrained very successfully with minimal pain for the general public and for the productive business sector over this challenging period. The rest of the world could and should have done much the same wherever appropriate.
Japan’s monetary policy experiment is working – Bill Mitchell – 26 June 2023
Logic and the legitimate objectives of social justice, serving the public interest and good public administration should dictate that deficit hawks, neoclassical (and related) economists and 'free market/small or zero government' zealots should be dismissed from their positions in government and from any important governmental agencies such as the Fed.
It is now clear as day to me that Powell is not acting on behalf of the general public or of the productive portion of the business sector but presumably for the banking and finance elites from which he and his associates were spawned - Wall Street's vulture bankers that no doubt crave another opportunity to feed on some bargains in the event of a successfully engineered economic downturn.
This all sounds like a re-run of the 2008 -2009 GFC or Great Recession to me which was in many key ways a rerun of Paul Volcker's shock therapy and the associated evisceration of the US and global economies starting in 1981 and 1982 and the ten lost 'Volcker years' period that must NEVER BE REPEATED.
Matt Taibbi's famous article appears to be very apt again.
The Great American Bubble Machine – Matt Taibbi – Rolling Stone – 5 April 2010
Biden and much of Congress appear to be learning to be deficit doves or maybe even to be deficit owls and appear to be winning their joust with Powell and some other allied dangerous 'experts' like Larry Summers but would it not be simpler and be more rational just to remove most of the destructive deficit hawks and similar neoliberal free market/small government fundamentalists and scammers from public office as after all they have been working for the partisan interests of someone else all along?
@STEPHANIE KELTON mam your newsletter is very nice and informative I have recommended your newsletter to my subscribers can you mam please recomend my newsletter to your subscribers so that we can both grow each other.
Marianne, I love your platform...it is on target for our times. I would love to see a lobby, at some point (I hope to start it), that promotes the Gross Satisfaction Index, replacing the GNP... that is a ways off in the future, but if passed, would take care of many other issues...basic income, free education, decent jobs, etc. This would need to be combined with Modern Monetary Policy, which says the concern about the budget deficit is outmoded. We will hold onto your vision! Thank you for running!!!
You have Jared Bernstein and others in Biden administration come on TV in the last few days (MSNBC) and make the statement that they will continue to allow the Fed to operate independently to preform monetary policy. The Fed is clearly functioning as the tool for the benefit of capital over labor. Typical left-wing neoliberal policy of giving lip service to labor while hiding behind some other entries like the Fed in this case or the "Federal deficit'' as an excuse to cut spending in others. While we have seen some movement by the Biden administration to reduce the full-on attack on labor, it reminds nowhere close to what is needed considering what the people who work for a living have been through the last 3 years with COVID, high inflation (corporate price gouging), and housing costs throwing many more people out on the streets, and all the rest.
The hands of approach of the Fed by the Biden administration has emboldened the Fed, as apparent in Powells speech. What would FDR say?.......heck, what would a President B. Sanders say?
It was a relief to read that "there aren't that many parts of the economy that are very sensitive to interest rates." But interest rates are all the Fed has to work with. I wish that Powell and his staff would look at the insights of Modern Monetary Theory, and get on the ball, before they ruin the progress our economy has made in the past three years.
So who is the most successful practicing economist in Washington these days? Hint, he doesn't have a degree in economics. He used the elevated fear during the pandemic to cement legislation that would support stay at home families, bring technological manufacturing jobs back to the U.S., got a ten year infrastructure maintenance and improvement bill passed, finally got a commitment for Medicare to negotiate drug prices, lowered the cost of insulin to $15/month which will reduce the national debt substantially over the next decade. He is delivering lucrative contracts to manufacturers who must make a commitment to union jobs in order to qualify for the money. What is the upshot of all this? Just listen to the discussions on CNBC! This can't be happening; we keep hiring more people at better wages and inflation keeps shrinking. This is not what we were taught in school. What the blazes is going on here? The higher Powell raises interest rates the more jobs are being created. It's never our 'pricing power' that's causing inflation; it's those damn wages. And now vacation season is ending and gas prices are melting, melting... More good news for consumers. Does it make sense to anyone to define wages as 'purchasing power'? And how can it be the best thing for a consumer based economy to define consumer purchasing power (wages) as the problem? Better start revising those text books to include some MMT fundamentals.
Powell can dance all he wants but what I see daily is not comforting. Something is going to give. IMO.
The economy has been pretty remarkable in terms of holding off a recession. But make no mistake, Powell isn't going to stop anytime soon until we get one and force nearly 2 million people out of work despite no evidence of a wage price spiral. All he's doing with at least one or two more rate hikes end of the year is making bondholders richer. The 2 year is over 5% as we speak. And yes I agree, the 2% inflation is too extremist and I do think the US needs a higher inflation target.
What is this obsession with 2 percent all about. Where does this number come from?
Is the idea that if GDP growth is around 2% then inflation should be around there also? But if GDP is growing at a higher rate, doesn't that then warrant a higher target inflation?
Sorry, I am by no means an expert in this!
Why doesn’t President Biden fire Powell and replace him with someone who has the entire country’s best interest in mind and not just the wealthy ?
Further to Stephanie's diplomatic and deliberately restrained comments on Chairman Powell's recent speech I would like to add a few more relevant comments.
It should be clear to all of us by now that the objective of the deficit hawks in the Fed ACTUALLY IS to raise unemployment, increase personal and business bankruptcies and to weaken those parts of the economy where the general public and main street live and transact. The deficit hawks are partially attaining that objective.
It looks obvious to me that fighting inflation is just a convenient pretext for the Fed and it's Chairman, although they like most people would no doubt prefer low inflation to high inflation over the long term.
Inflation is however being successfully fought by the Biden administration and by the EU through direct action for example by increasing supply from alternative oil and gas sources (US strategic petroleum reserve releases and increased US and global fracked (mostly) gas and LNG supplies) and by reducing oil and gas demand (energy conservation and more renewable power plus more coal fired power especially in Europe as Russian oil and gas supplies to Europe wind down). China's manufacturing powerhouse has also come back online thus relieving many shortages that arose from the recent pandemic.
Similarly Ukraine via the mechanism of the Grain Deal with Russia was recently able for many months to export their agricultural commodities in large quantities following Putin's messianic invasion, thus relieving some of those associated global commodity shortages. Russia has been a big exporter of those same commodities thus helping to unwind some of their own (Putin's) damage.
Spain even successfully managed to impose price controls on profit gouging corporations thus reducing that major source of inflation at least in that country. In most countries wage increases have not kept pace with inflation so this has had a major deflationary effect.
A truly major oil and gas supply shock potentially worse than the two Middle East oil supply shocks of the 1970's (firstly OPEC's huge oil price increases in 1973 following the Yom Kippur War and later the Iranian Revolution in 1979) appears to have been successfully averted primarily by the US, the EU and by many other global energy exporters. All of this came so soon after that other huge economic shock – the global Covid-19 pandemic that was defeated mainly through national central bank currency issuance on a unprecedented scale.
Stephanie and the MMT fraternity through their educational and publicity efforts and through the soundness of the economic theories themselves have no doubt been at the heart of these major successes, even if they have often felt like tiny voices in a storm of misinformation and lies.
Bill Mitchell's blog posts on Japan show how inflation can be restrained very successfully with minimal pain for the general public and for the productive business sector over this challenging period. The rest of the world could and should have done much the same wherever appropriate.
Japan’s monetary policy experiment is working – Bill Mitchell – 26 June 2023
https://billmitchell.org/blog/?p=60938
Monetary policy in the hands of the central banker sociopaths is advancing the class interests of the elites – Bill Mitchell – 5 July 2023
https://billmitchell.org/blog/?p=60960
Logic and the legitimate objectives of social justice, serving the public interest and good public administration should dictate that deficit hawks, neoclassical (and related) economists and 'free market/small or zero government' zealots should be dismissed from their positions in government and from any important governmental agencies such as the Fed.
It is now clear as day to me that Powell is not acting on behalf of the general public or of the productive portion of the business sector but presumably for the banking and finance elites from which he and his associates were spawned - Wall Street's vulture bankers that no doubt crave another opportunity to feed on some bargains in the event of a successfully engineered economic downturn.
This all sounds like a re-run of the 2008 -2009 GFC or Great Recession to me which was in many key ways a rerun of Paul Volcker's shock therapy and the associated evisceration of the US and global economies starting in 1981 and 1982 and the ten lost 'Volcker years' period that must NEVER BE REPEATED.
Matt Taibbi's famous article appears to be very apt again.
The Great American Bubble Machine – Matt Taibbi – Rolling Stone – 5 April 2010
https://www.rollingstone.com/politics/politics-news/the-great-american-bubble-machine-195229/
Biden and much of Congress appear to be learning to be deficit doves or maybe even to be deficit owls and appear to be winning their joust with Powell and some other allied dangerous 'experts' like Larry Summers but would it not be simpler and be more rational just to remove most of the destructive deficit hawks and similar neoliberal free market/small government fundamentalists and scammers from public office as after all they have been working for the partisan interests of someone else all along?
@STEPHANIE KELTON mam your newsletter is very nice and informative I have recommended your newsletter to my subscribers can you mam please recomend my newsletter to your subscribers so that we can both grow each other.
Marianne, I love your platform...it is on target for our times. I would love to see a lobby, at some point (I hope to start it), that promotes the Gross Satisfaction Index, replacing the GNP... that is a ways off in the future, but if passed, would take care of many other issues...basic income, free education, decent jobs, etc. This would need to be combined with Modern Monetary Policy, which says the concern about the budget deficit is outmoded. We will hold onto your vision! Thank you for running!!!
I liked sharing this today on my daily newsletter as a rare example of an economist who does not have her head ---- well you get it, right?
You have Jared Bernstein and others in Biden administration come on TV in the last few days (MSNBC) and make the statement that they will continue to allow the Fed to operate independently to preform monetary policy. The Fed is clearly functioning as the tool for the benefit of capital over labor. Typical left-wing neoliberal policy of giving lip service to labor while hiding behind some other entries like the Fed in this case or the "Federal deficit'' as an excuse to cut spending in others. While we have seen some movement by the Biden administration to reduce the full-on attack on labor, it reminds nowhere close to what is needed considering what the people who work for a living have been through the last 3 years with COVID, high inflation (corporate price gouging), and housing costs throwing many more people out on the streets, and all the rest.
The hands of approach of the Fed by the Biden administration has emboldened the Fed, as apparent in Powells speech. What would FDR say?.......heck, what would a President B. Sanders say?
It was a relief to read that "there aren't that many parts of the economy that are very sensitive to interest rates." But interest rates are all the Fed has to work with. I wish that Powell and his staff would look at the insights of Modern Monetary Theory, and get on the ball, before they ruin the progress our economy has made in the past three years.
So who is the most successful practicing economist in Washington these days? Hint, he doesn't have a degree in economics. He used the elevated fear during the pandemic to cement legislation that would support stay at home families, bring technological manufacturing jobs back to the U.S., got a ten year infrastructure maintenance and improvement bill passed, finally got a commitment for Medicare to negotiate drug prices, lowered the cost of insulin to $15/month which will reduce the national debt substantially over the next decade. He is delivering lucrative contracts to manufacturers who must make a commitment to union jobs in order to qualify for the money. What is the upshot of all this? Just listen to the discussions on CNBC! This can't be happening; we keep hiring more people at better wages and inflation keeps shrinking. This is not what we were taught in school. What the blazes is going on here? The higher Powell raises interest rates the more jobs are being created. It's never our 'pricing power' that's causing inflation; it's those damn wages. And now vacation season is ending and gas prices are melting, melting... More good news for consumers. Does it make sense to anyone to define wages as 'purchasing power'? And how can it be the best thing for a consumer based economy to define consumer purchasing power (wages) as the problem? Better start revising those text books to include some MMT fundamentals.