by winston » Thu Nov 18, 2021 8:41 am
Larry Summers on Inflation
In an op-ed piece for the Washington Post earlier this week, Summers began by noting Federal Reserve Chairman Jerome Powell’s Jackson Hole speech in late August.
If you recall, it highlighted five pillars supporting the “transitory” view of inflation.
Here’s Summers:
Today, all five pillars are wobbly at best.
First, there was a claim that price increases were confined to a few sectors. No longer. In October, prices for commodity goods outside of food and energy rose at more than a 12 percent annual rate. Various Federal Reserve system indexes that exclude sectors with extreme price movements are now at record highs.
Second, Powell suggested that high inflation in key sectors, such as used cars and durable goods more broadly, was coming under control and would start falling again. In October, used-car prices accelerated to more than a 30 percent annual inflation rate, new cars to a 17 percent rate and household furnishings by an annualized rate of just above 10 percent.
Third, the speech pointed out that there was “little evidence of wage increases that might threaten excessive inflation.” This claim is untenable today with vacancy and quit rates at record highs, workers who switch jobs in sectors ranging from fast food to investment banking getting double-digit pay increases, and ominous Employment Cost Index increases.
Fourth, the speech argued that inflation expectations remained anchored. When Powell spoke, market inflation expectations for the term of the next Federal Reserve chair were around 2.5 percent. Now they are about 3.1 percent, up half a percentage point in the past month alone…
Fifth, Powell emphasized global deflationary trends. In the same week the United States learned of the fastest annual inflation rate in 30 years, Japan, China and Germany all reported their highest inflation in more than a decade.
Bottom line, I hope Kashkari, Daly, and Powell are (eventually) correct about inflation, despite being woefully wrong so far.
Source: Investor Place
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