On Powell at Jackson Hole

Nothing new in Powell’s long-awaited speech, which he almost didn’t give. Bigger news is this morning’s reported July deflation in the headline PCE Index, a sequential drop in year-over-year core, and another month of consumer dis-savings. Powell overtly dismissed that in his speech, insisting a “restrictive policy stance for some time” is required. Market-implied expectations for the September FOMC fell on the good inflation news, and didn’t come all the way back with Powell’s speech. The implied funds rate for February is still below its high-water mark just before the June FOMC, though the year-end implied funds rate rose slightly. Powell failed to mention a NY Fed study this week showing that 60% of present inflation is due to expansionary fiscal policy. Such policy ended long ago, and inflation is subsiding with an expectable lag. Today’s risk-off reaction in markets is not due to anything new or more hawkish that Powell said – but rather his continued willful blindness, and his seeming ignorance of the dynamics underlying inflation.