Inflation Fight Will Take 'Fortitude,' Cleveland Fed President Says
Comments come after Jamie Dimon warns of economic hurricane
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Loretta Mester, the Federal Reserve Bank of Cleveland president, said in a speech Thursday that she believes the central bank should pursue an aggressive approach to tackling inflation and sees a need to raise the policy rate another 50 basis points at each of the upcoming Federal Open Market Committee meetings.
“This will take fortitude,” she said, according to The Wall Street Journal. “There will be bumps in the road. This will be painful, but so is high inflation.”
The previous meeting occurred in early May and resulted in the central bank’s most significant hike in 20 years. The Fed also announced plans to reduce its $9 trillion balance sheet, which skyrocketed during the COVID-19 outbreak.
Jay Powell, the Fed chairman, spent months referring to inflation as “transitory,” but changed his tune in April when he said it was time to be “moving a little more quickly” to tighten monetary policy.
Some economists say the Fed will have to raise the rate even higher “just to maintain a neutral setting because underlying inflation is so high.”
Mester, who gave a video speech sponsored by the Philadelphia Council for Business Economics, seems to be embracing a wait-and-see approach. She said in the speech that the rate of rate increases could slow if monthly readings on inflation “provide compelling evidence that inflation is moving” on a downward trajectory.
“But if inflation has failed to moderate, then a faster pace of rate increases could be necessary,” she said.
She said the risk of recession has increased, but she also said she believes a "sharp slowdown can be avoided."
Jamie Dimon: Get Ready for a ‘Hurricane’
Jamie Dimon, the head of JPMorgan Chase, told a financial conference in New York on Wednesday that there are storm clouds on the horizon for the U.S. economy, and his bank is preparing for an economic hurricane. (Read more here)
How Did We Get Here?
In December 2020, Powell pointed to “disinflationary pressures around the globe” and said “it’s not going to be easy to have inflation move up.”
A month later, with inflation on the move well above the Fed’s 2-percent target rate, Powell said it was only “temporary.”
In July 2021, with inflation running at 5 percent, Powell told a Congressional committee that “we really do believe that these things will come down of their own accord as the economy reopens.”
Wrong, wrong, and wrong.
As we noted in “Fed: Stronger Economy, Steady Rates” (23 Mar 2021), Fed officials predicted overall U.S. inflation this year would be 2.4 percent.
Instead, it topped 6 percent in October and has averaged 4.1 percent from January through October.
Until November, Powell and the Fed’s Open Market Committee were referring to inflation as “temporary,” which became “transitory,” a more useful weasel word as what Powell had called “temporary” stretched into its 10th month.
So when we hear Powell declare that the Fed will use all of its tools and “take necessary steps” to vigorously fight inflation, we also notice that he failed to say exactly when that would happen.
Note to readers: In “ECB Economist Does a 180 on Inflation” (22 Feb 2022), The Trends Journal diagnosed Powell’s condition as “Central Bankster Syndrome,” marked by the compulsion to see soaring prices as “temporary” or “transitory” until long after inflation has rampaged through the economy unchecked.
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