Getting Stoned Beneath the Stars with Jerome
Powell is likely to get what he’s been wishing for, and then some...
· Powell’s answers to the reporters’ questions at Wednesday’s press conference showed that he continues to sail using a decidedly less ‘scientific’ method than either Bernanke or Yellen, but that his basic goals remain the same.
· Powell has fooled himself into believing that the bond market professionals he spent his life working with are more economically important than the millions of households that make up the economy.
· Bottom Line: The similarities between 2023-2024 and 1972-1973 are striking with partisans keeping policy overly loose in an election year and the risk of disruptions to energy and trade setting off an inflationary spike. Ride the wave of disinflationary optimism for the remainder of 2023 dear readers but be ever watchful for the growing fever of inflation as we enter 2024 and be ready for the manic volatility that follows in asset markets.
Four years and eleven months ago, Chairman Powell spoke at the Jackson Hole Conference for the first time as chairman. He used the opportunity to lay out the economic framework, such as it is, that guides his actions. Powell used the analogy of sailors navigating by the stars to describe his method of making monetary policy decisions with the judicious use of real time data and estimates of long-run norms that take on the colloquial name and navigational function of “stars”.
I wrote at the time:
Managing Directors Powell and Greenspan should be expected to run a different ship than Professors Bernanke and Yellen, but they all think they are sailing to the same place. The place they search for is called “equilibrium” and they imagine into to be an actual and achievable state of existence. They are mistaken to search for a place called “equilibrium” because equilibrium is a process not a state. Indeed, the capital liquidations triggered by the bursting of the “New Economy” and “Housing” bubbles was an attempt by economic agents to find a functioning market equilibrium. Unfortunately, the price adjustment and resulting necessary economic recalculation were too large to execute spontaneously without panic.
Powell’s answers to the reporters’ questions at Wednesday’s press conference showed that he continues to sail using a decidedly less ‘scientific’ method than either Bernanke or Yellen, but that his basic goals remain the same. Powell is less willing to bet his reputation on economic models, hence the intense focus on “incoming data”, but he does believe that he is navigating the economy to a destination called “equilibrium” and that the path forward, although a difficult one, is clear.
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