Here’s Proof of Fed Consistency On Inflation Fight

There’s a lot of bluster out there about what the Fed says and how they’ve been inconsistent in the inflation fight, but I disagree. The Fed’s inflation stance in March 2023 hasn’t changed since September. Let’s run it down.

Here’s what Fed Chair Jay Powell said in Congressional testimony yesterday:

Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.

Here’s what Powell said in his press conference following the February 1, 2023 FOMC meeting where they raised overnight bank-to-bank lending rates 25 basis points:

Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course, until the job is done.

Sound familiar? There are only 2 differences:

1. Changing ‘reducing inflation’ to ‘restoring price stability’ which are synonymous phrases.

2. Removing the ‘softening of labor market conditions’ sentence, which ostensibly was done because Powell knew he’d get grilled on that topic anyway. Which he did by Elizabeth Warren, and here I explained how senators who say the inflation fight will ruin the job market are wrong because they ignore the reality of needing to kill inflation — and they exclude the fact that any forthcoming job loss pain starts from today’s 50-year low unemployment.

The Fed’s consistent guidance continues.

Here’s what Powell said in his December 14, 2022 press conference after they hiked 50 basis points:

Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.

This December statement matches the February statement.

Here’s what Powell said in his November 2, 2022 press conference after they hiked 75 basis points:

Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices in the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.

Again, it continues verbatim.

Here’s what Powell said in his September 21, 2022 press conference after they hiked 75 basis points:

Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a sustained period of below-trend growth, and there will very likely be some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. We will keep at it until we are confident the job is done.

Prior to that, the Fed had raised overnight bank-to-bank lending rates as follows:

+0.75% July 27
+0.75% June 15
+0.5% May 1
+0.25% March 15

But they didn’t use the ‘keep at it’ or ‘stay the course’ language until September.

Fighting inflation is a sh!t job because everyone is pissed at you.

You’re not doing enough.

You’re doing too much.

You’re making inflation worse.

You’re going to kill the job market.

Still, the above examples show a lot of consistency that gets lost in the political and media bluster.

Until proven wrong, I believe in the message consistency: the Fed will do what’s necessary to kill inflation.

That said, Mohamed El-Erian has been pounding the table on a key point that deserves more attention in the inflation fight debate:

[The Fed’s] August 2020 “new monetary framework” is more appropriate for the pre-2020 world and not that of today and tomorrow — that is, it is designed for the previous paradigm of insufficient aggregate demand and not the reality of insufficient aggregate supply.

___
Reference:

– 3 factors explaining volatility caused by Fed decisions (Mohamed El-Erian on Bloomberg)

– Inflation Fight Update: Politicians squawk while Fed signals 50 basis point hike March 22