5 ms·

Fed Chairman says economic reopening could cause inflation to rise temporarily

18 points by koolba 6y ago

nabla9 6y ago
Fed changed the inflation targeting policy in November. They are now doing average inflation targeting This means that they allow core PCE inflation be above 2% for a longer time so that the average settles around 2%.
phantom_oracle 6y ago
> With the economy increasingly back on its feet, some price pressures are likely to emerge, How? The article is short on substance about how a 'reopening' could lead to more inflation. Is it more people going out and spending money? Something else maybe?
- mywittyname 6y ago
  Yes. This is another way of saying, 'recovery.' It's a little buried because of the writer's insistence on micro-quoting Powell. But the overall message Powell is sending is that 2020 prices were depressed and that we will see a correction in the short term. Prices for a lot of goods -- gas, travel, hotel, etc -- have been in the dumps since COVID. It should be expected that prices on these goods will rise as the country opens up. There will probably be a good deal of pressure on labor prices as well. I suspect that many people in the hospitality and service industries have changed careers rather than sit around indefinitely waiting for a 'reopening'.
- mikem170 6y ago
  The velocity of money has a lot to do with inflation. How many times per year is a given dollar spent? The assumption is that as the pandemic ends that this velocity measurement will increase, that people will be out buying and selling things a lot more than they have been for the last year. The size of the money supply was increased significantly over the last year, due to the trillions in federal stimulus injected into the economy. This was done presumably to prevent many businesses and households from becoming financially insolvent. This is also considered to be inflationary.
call_me_dana 6y ago
Yes, reopening the economy would be the cause of inflation. Not the trillions of dollars of quantitative easing.
- anm89 6y ago
  Quantitative easing doesn't generally cause inflation in my opinion. All it does is increases bank reserves which is why 10 years into endless qe, inflation is very muted. The reason they are finally expecting inflation now is that they are going into policy measures on the fiscal side that actually enter the real economy, not just qe. Imo one dollar of fiscal expenditure has the power of at least $10 of qe if not actually more like an infinite multiplier in the case that qe does literally nothing. If you are interested I. This kind of stuff search YouTube for Jeff snider or Lacy Hunt. Both of them are really fascinating to listen to and have a strong conviction that qe is totally ineffective.
  - imtringued 6y ago
    Economies don't exist in a vacuum. There is a demand component and a supply component. The Fed pretends as if influencing the supply component is the only thing that is important. There are parallels to the law of the minimum. >It states that growth is dictated not by total resources available, but by the scarcest resource (limiting factor). [0] The same applies to the economy. If adding more money to the supply side does nothing, that means you already did your job and the supply side is already saturated and you should look for the part of the economy that is lacking in stimulus. [0] https://en.wikipedia.org/wiki/Liebig%27s_law_of_the_minimum https://en.wikipedia.org/wiki/Liebig%27s_law_of_the_minimum
  - jsmcgd 6y ago
    Can you think of any period of hyper-inflation without quantitative easing? People assume that because the velocity doesn't increase in lock step with the amount of currency creation that somehow inflation has been avoided, but the tsunami is still coming. A series of growing incidents will become a crisis, and it will lead to a collapse in faith of the spending power of all western fiat currencies. That's when everyone, including large institutions will start disgorging vast amounts of dollars in an effort to put that value somewhere more secure and the spending power of the currency will collapse and with it the value of everyone's savings. There is nothing new here. This has happened many times before.
aksss 6y ago
“There is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation…” https://www.washingtonpost.com/opinions/2021/02/04/larry-summers-biden-covid-stimulus/ https://www.washingtonpost.com/opinions/2021/02/04/larry-sum...
- adamcstephens 6y ago
  Larry Summers is a fool and history has shown you shouldn’t listen to him.
deleted 6y ago
[deleted]

18 points by koolba 6y ago

Fed changed the inflation targeting policy in November. They are now doing average inflation targeting This means that they allow core PCE inflation be above 2% for a longer time so that the average settles around 2%.

phantom_oracle 6y ago

> With the economy increasingly back on its feet, some price pressures are likely to emerge, How? The article is short on substance about how a 'reopening' could lead to more inflation. Is it more people going out and spending money? Something else maybe?

mywittyname 6y ago
Yes. This is another way of saying, 'recovery.' It's a little buried because of the writer's insistence on micro-quoting Powell. But the overall message Powell is sending is that 2020 prices were depressed and that we will see a correction in the short term. Prices for a lot of goods -- gas, travel, hotel, etc -- have been in the dumps since COVID. It should be expected that prices on these goods will rise as the country opens up. There will probably be a good deal of pressure on labor prices as well. I suspect that many people in the hospitality and service industries have changed careers rather than sit around indefinitely waiting for a 'reopening'.
mikem170 6y ago
The velocity of money has a lot to do with inflation. How many times per year is a given dollar spent? The assumption is that as the pandemic ends that this velocity measurement will increase, that people will be out buying and selling things a lot more than they have been for the last year. The size of the money supply was increased significantly over the last year, due to the trillions in federal stimulus injected into the economy. This was done presumably to prevent many businesses and households from becoming financially insolvent. This is also considered to be inflationary.

call_me_dana 6y ago

Yes, reopening the economy would be the cause of inflation. Not the trillions of dollars of quantitative easing.

anm89 6y ago
Quantitative easing doesn't generally cause inflation in my opinion. All it does is increases bank reserves which is why 10 years into endless qe, inflation is very muted. The reason they are finally expecting inflation now is that they are going into policy measures on the fiscal side that actually enter the real economy, not just qe. Imo one dollar of fiscal expenditure has the power of at least $10 of qe if not actually more like an infinite multiplier in the case that qe does literally nothing. If you are interested I. This kind of stuff search YouTube for Jeff snider or Lacy Hunt. Both of them are really fascinating to listen to and have a strong conviction that qe is totally ineffective.
- imtringued 6y ago
  Economies don't exist in a vacuum. There is a demand component and a supply component. The Fed pretends as if influencing the supply component is the only thing that is important. There are parallels to the law of the minimum. >It states that growth is dictated not by total resources available, but by the scarcest resource (limiting factor). [0] The same applies to the economy. If adding more money to the supply side does nothing, that means you already did your job and the supply side is already saturated and you should look for the part of the economy that is lacking in stimulus. [0] https://en.wikipedia.org/wiki/Liebig%27s_law_of_the_minimum https://en.wikipedia.org/wiki/Liebig%27s_law_of_the_minimum
- jsmcgd 6y ago
  Can you think of any period of hyper-inflation without quantitative easing? People assume that because the velocity doesn't increase in lock step with the amount of currency creation that somehow inflation has been avoided, but the tsunami is still coming. A series of growing incidents will become a crisis, and it will lead to a collapse in faith of the spending power of all western fiat currencies. That's when everyone, including large institutions will start disgorging vast amounts of dollars in an effort to put that value somewhere more secure and the spending power of the currency will collapse and with it the value of everyone's savings. There is nothing new here. This has happened many times before.

aksss 6y ago

“There is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation…” https://www.washingtonpost.com/opinions/2021/02/04/larry-summers-biden-covid-stimulus/ https://www.washingtonpost.com/opinions/2021/02/04/larry-sum...

adamcstephens 6y ago
Larry Summers is a fool and history has shown you shouldn’t listen to him.

deleted 6y ago

[deleted]