Commentary on Political Economy

Thursday 21 March 2024


 ‘Are They More Than Bumps?’

That’s the question Jerome Powell asked Wednesday about the acceleration in inflation in January and February, and investors clearly think the Federal Reserve Chairman’s answer will be “no.” They bid up asset prices nearly across the board as Mr. Powell suggested that the latest monthly price-increase figures “ haven’t really changed the overall story” of inflation’s march down to the Fed’s 2% target.

That message also came through in the “dot plots” of projections by the Fed board of governors and regional bank presidents about the future path of the economy, job growth and interest rates. It’s full speed ahead on three interest-rate cuts this year, and there was more for the monetary doves to like. Mr. Powell said the Fed will start to slow down the monthly reduction in its bond portfolio “fairly soon.” All of this reinforced the market’s expectation of easier monetary conditions that has fueled the recent rally in stocks, Bitcoin, gold, copper and other commodities.

Mr. Powell showed no less determination to reach the Fed’s 2% inflation target, though the Fed players did project that core inflation is going to be higher at 2.6% this year than the 2.4% they projected in December. So inflation will be higher than previously expected, but monetary easing will continue as expected. We’ll see how that apparent contradiction holds up in the coming months.

Powell seems unworried by accelerating prices in January and February.

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