Amber Baesler/AP Photo
Federal Reserve Chair Jerome Powell, center, takes a coffee break with attendees of the central bank’s annual symposium at Jackson Lake Lodge in Grand Teton National Park, August 26, 2022, in Moran, Wyoming.
At his speech this morning at the Fed’s annual Jackson Hole conference, Fed Chair Jay Powell did not disappoint those calling for a Fed-administered recession. Powell declared that “reducing inflation is likely to require a sustained period of below-trend growth,” a polite euphemism for recession.
Powell indicated that the Fed would keep raising short-term interest rates at the September meeting of its policy-setting Federal Open Market Committee, leaving open whether the hike would be another three-quarters of a point, of perhaps a lower half-point increase. “Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook.”
But just to douse any optimism that the Fed might relent, Powell added, “Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”
Just to add insult to injury, the Fed chair scapegoated workers. “The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers.” In fact, long-overdue wage increases are lagging inflation, not driving it.
Powell also invoked the stagflation of the late 1970s, with a positive shout-out to then–Fed Chair Paul Volcker’s disastrous policy of raising short-term rates to over 20 percent and deliberately creating a deep recession rather than addressing structural factors. “A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation,” Powell said, praising Volcker as a role model.
The Fed chairman’s speech said not a word about supply chain bottlenecks, nor about price-gouging by suppliers with monopoly power, nor the impact of the Russian invasion of Ukraine. It was about what you’d expect of a Republican central banker who came from Wall Street, only worse.
Biden should regret having passed over Democrat Lael Brainard in favor of reappointing Powell, a Trump appointee who feigned dovishness during his Biden audition period. To the extent that so much of today’s inflation is the result of supply bottlenecks, pushing the economy into recession will not cause more ships to unload or more oil and wheat to appear on world markets.
As Powell admitted, “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.” He got that right.
