In response to the most increasing U.S. consumer prices (CPIs) in 13 years (4.5% yoy), well above the Fed’s 2% guideline, Federal Reserve Chairman Jerome Powell told lawmakers he was concerned about inflation. As a result, he is ready to take the appropriate steps to reign over the prices. Powell said: “Officials are thinking about higher inflation and how they interpret it, night and day.”
Powell continued, “We are experiencing a sharp rise in inflation, bigger than expected, certainly bigger than I expected, and we are trying to figure out if this is something that will pass quickly enough or if, in fact, we have to act. “
To date, most economists have agreed with Powell that our high level of inflation has been transient. Robert Frick, a business economist at the Navy Federal Credit Union, said: “The CPI numbers for June look scary. We can see that it was mainly temporary price increases that drove the numbers up. Overall, this report is consistent with slowing inflation later this year. “
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In 2020, the Fed cut overnight interest rates to near zero and pumped money into the economy through monthly bond purchases to counter the negative impact of COVID- 19. The federal government has provided billions of dollars in stimulus payments to increase the purchasing power of consumers and stimulate economic activity.
The 10-year US Treasury rate stabilized around 1.29%. This low rate underscores investors’ concern about our economic recovery and their belief that we will contain inflation.
Powell tried to allay senators’ concerns about inflation. He said: “One way or another, we are not going into a period of high inflation for a long time, because of course we have tools to address it. Most of Powell’s criticism comes from Republicans who question the Fed’s ultra-supportive monetary policies.
What is the fly in the ointment? Although Powell admits inflation has reached uncomfortable levels, he does not want to take premature steps to halt the recovery when millions of people are still out of work.
The Ministry of Labor has reported that used cars and trucks account for more than a third of the price hike. The 10.5% increase in used cars and trucks was the largest since January 1953, when the government started tracking this series. Supply constraints and the upsurge in travel-related services have resulted in price increases.
Unfortunately, the pandemic has created problems that will last for years. Although millions of Americans are unemployed, labor shortages drive up wages, pushing up prices. Since childcare is so expensive, many mothers of young children have stayed at home. At the other end of the age bracket, the pandemic has forced early retirements. The pandemic has encouraged industries, from hotels to aerospace, to invest in automation and implement other changes to save on labor costs.
Barron’s warned that companies cannot immediately pass cost increases on to their customers. The producer price index, a measure of wholesale inflation, has risen seven percent over the past year. Companies such as Conagra Brands, General Mills and McCormick have lowered their profit estimates because they cannot raise prices enough to offset rising commodity costs.
There is an idiom, “Before you judge a man, walk a mile in his shoes.” My main concern is inflation like many of my older constituents who live on a fixed income. In contrast, families who have lost their main source of income fear that they will feed themselves and have a roof over their heads. The Fed must use policies that soften everyone’s challenges. We need to keep the economy running without fueling inflation.
President Powell is “our man in Havana” who rolls the dice on our behalf. With any luck he rolls a seven or an eleven.
Sarasota resident Ernest “Doc” Werlin spent 35 years in the fixed income industry as a corporate bond trader and seller, including time as a trading partner at MorganStanley. corporate bonds. Send your suggestions and comments to [email protected].