Tell me when it hurts

An artificial intelligence would not find much difference between Powell’s speech today and his July press conference. For instance, look at these two paragraphs:

July press conference:

We are highly attentive to inflation risks and determined to take the measures necessary to return inflation to our 2 percent longer-run goal. This process is likely to involve a period of below trend economic growth and some softening in labor market conditions. But such outcomes are likely necessary to restore price stability and to set the stage for achieving maximum employment and stable prices over the longer run.


Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.

Pretty much the same. The cost of reducing inflation is below trend growth and a soft labor market. All Powell did is add some “sustained pain”. Ouch.

The forward guidance is also pretty similar, at least if you are an AI. This time I’ll do today’s speech first:

In current circumstances, with inflation running far above 2 percent and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause.

July’s increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. We are now about halfway through the intermeeting period. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.

Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy. Committee participants’ most recent individual projections from the June SEP showed the median federal funds rate running slightly below 4 percent through the end of 2023. Participants will update their projections at the September meeting.

Lots of emphasis on the likelihood that rates need to stay high for “some time” to avoid “prematurely loosening” policy.

In July, he made similar comments, but all the emphasis was on policy being data dependent:

Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2 percent. We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate; the pace of those increases will continue to depend on the incoming data and the evolving outlook for the economy. Today’s increase is the—in the target range is the second 75 basis point increase in as many meetings. While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then. We will continue to make our decisions meeting by meeting and communicating—and communicate our thinking as clearly as possible. As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation. Our overarching focus is using our tools to bring demand into better balance with supply in order to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored.

Making appropriate monetary policy in this uncertain environment requires a recognition that the economy often involves—evolves in unexpected ways. Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook.

. . . depend . . . meeting by meeting . . . anticipate . . . evolves in unexpected ways . . . nimble . . .

Even the term “While” at the beginning of a sentence subtly changes the emphasis of the conditionality.

If you tell me, “Oh come on, he’s saying almost the exact same thing”, then technically you are correct. But I’ll assume you are an AI, not a human being.

Powell got it right in July—make policy data dependent. Convince the markets you are neither a hawk nor a dove. Today, he’s making higher interest rates for an extended period a bit less data dependent. He is out in Wyoming, and perhaps he decided he needed to play the tough cowboy. I don’t know about the labor market, but the stock market certainly felt some “sustained pain”.

We need higher rates (75 bp) and more conditionality. In other words, it’s not so much easier money or tighter money—we need a more nimble monetary policy. We need less tail risk.

PS. How about holding next year’s meeting in a touchy-feely place like Marin County. Each year they can alternate. Instead of political business cycles we’ll have psychiatric business cycles.



38 Responses to “Tell me when it hurts”

  1. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    26. August 2022 at 14:53

    re: “to bring demand into better balance with supply”

    That’s never going to happen.

  2. Gravatar of agrippa postumus agrippa postumus
    26. August 2022 at 16:16

    economist manque sumner is still on the grassy knoll.

  3. Gravatar of Effem Effem
    26. August 2022 at 17:05

    His July speech sent 10y inflation expectations up ~18bp. Today they fell about 4bp and remain fairly high at 2.58%. Seems to me the market thinks todays speech was far more effective.

  4. Gravatar of David S David S
    26. August 2022 at 17:21

    Are we seeing some ghosts of 2008 here? Where the Fed expresses certainty absent data—or worse, seizes on anecdotes from a few businessman to justify bad policy?

    I don’t think Jackson Hole is a good place to define policy, no matter who happens to be there. The thin air can lead to hallucinations.
    Current Fed policy is making a certain class of speculators and charlatans unhappy, and that’s a good thing. If you’re thinking about leveraging to purchase real estate in the Metaverse then you should wait until borrowing costs soften a bit. Maybe by 2024 we’ll be ready for stuff like that.

  5. Gravatar of ssumner ssumner
    26. August 2022 at 21:49

    Effem, Effective at reducing inflation expectations a tiny bit and increasing business cycle uncertainty a lot.

    David, I’m not seeing 2008, as of the moment.

  6. Gravatar of Effem Effem
    27. August 2022 at 03:05

    Scott, I think you’re reading too much into the equity market. Neither inflation expectations nor commodities had a particularly volatile day. Index dividend futures were flattish. This was a market giving back a week of unnecessary gains. The stock market is not the economy. Consider the 99-02 bear market where stocks fell ~60% but we only had a short, mild recession. The Fed should be thrilled to engineer such an outcome if that gets inflation back to target and restores credibility.

    I fear our collective obsession with the whims of the equity market leads to some poor decision making.

  7. Gravatar of Michael Rulle Michael Rulle
    27. August 2022 at 03:20

    Scott is spot on.

    Powell is simply unreal. After the July statement I said here that “I was willing to be fooled again”. His July statement was what it should have been. So,I suppose I was hoping he was not leading us down a primrose path but was being practical —(as Scott says “data dependent”).

    But once again he provides evidence he may truly have no idea what he is doing. Let’s us not forget——-this is a guy who claimed me never implemented a FAIT policy, a few months after he specifically did. Scott is kind and said he merely changed his mind —bad enough—-but the evidence—his quotes—-is he denied he ever had such a policy.

    So yes, I was fooled again. I cannot be fooled again. I can only be afraid.

  8. Gravatar of Effem Effem
    27. August 2022 at 03:27

    Also I’ve read a lot from you on targeting NGDP but not on targeting the volatility of NGDP. can you expand?

    First how are we going to observe volatility of NGDP? I understand a futures contract for market expectations of NGDP. Options on that contract now so we can try to observe an implied volatility?

    Second, presumably the best way to dampen volatility is too keep NGDP right on target. But once you’ve under- or overshot it’d seem you need to move more aggressively and that will produce some volatility. If we’ve hypothetically badly undershot should we slow the pace of our attempts to get back on trend in order to smooth the process and avoid volatility?

  9. Gravatar of Michael Rulle Michael Rulle
    27. August 2022 at 03:33

    Effem—-Reading too much into the whims of the equity market? What are “unnecessary gains”?

    There are no such things. The equity market is the vote. How does it drop 3%+ in a few minutes unless greater uncertainty was created? Or greater certainty he will squeeze the economy at all costs to “make sure” inflation falls. Or whatever he thinks.

    It matters what he says—-but it no longer matters why—-as I really believe he has no understanding of what a Fed communicator is supposed to do.

  10. Gravatar of Effem Effem
    27. August 2022 at 03:43

    Michael, if there aren’t “unnecessary gains” then there aren’t “unnecessary losses” either. Truth is equity markets are noisy and can become very detached from the economy. We have better market measures of what the Fed is concerned with (eg, inflation expectations).

    Feels like you and Scott are rooting more for a bull market than for the Fed to get inflation back on target. Powell’s July speech sent 10y inflation expectations up a whopping 18bp – how is that anything other than a disaster? But stocks were up so you seem pleased.

    Powell’s speech yesterday pushed inflation expectations down 4bp, which is (small) progress towards the goal. But stocks were down so you seem displeased.

    Are you targeting inflation or equity prices?

  11. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    27. August 2022 at 05:16

    Gross Domestic Product: Implicit Price Deflator (A191RI1Q225SBEA)

    Q2 2022: 9.0
    Q1 2022: 8.3
    Q4 2021: 7.1
    Q3 2021: 5.9
    Q2 2021: 6.2

    Where’s the slow down? That’s not progress. That’s stagflation. Stocks are going to get crushed.

    Powell: “Restoring price stability will likely require maintaining a restrictive policy stance for some time.” That’s an understatement.

  12. Gravatar of James Alexander James Alexander
    27. August 2022 at 07:29

    Equity and bond markets must have different views of the future post Powell on Friday. Bonds and FX already believed it will take tougher action to reduce inflation and expect Powell to continue to deliver it. Equity markets thought he was bluffing, they see a bit less bluff now. Could that have been predicted? Equities move around a lot in the interim between Powell statements due to all sorts of things (near term earnings expectations especially) bonds and fx less so.

  13. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    27. August 2022 at 08:40

    What you have to watch is the IOR relative to short-term rates. If Powell hikes the IOR above short-term rates, we’ll get another Sept. 2019 repo spike (disintermediation, a reduction in the supply of loan funds).

  14. Gravatar of Cameron Cameron
    27. August 2022 at 09:33

    Scott, I’m not sure if you have noticed this, but I certainly have…

    2008-2012: “The Fed can constrain the economy by raising interest rates, but it can’t stimulate the economy as easily, especially when rates are already at 0%.”

    2022-?: “The Fed can always stimulate the economy by printing money but it can’t address inflation caused by fiscal policy no matter how much it raises rates.”

    What’s even more baffling is some of the most “inflationary” areas of the economy (housing, autos) are the interest rate sensitive ones that should respond MORE to “rate increases” than the overall economy. I have no idea what model these people have in mind.

    Thankfully, I don’t really think this thinking (that monetary policy can’t do much) is nearly as mainstream as it was back in the Great Recession, but it’s still amazing to see the contrast.

  15. Gravatar of ssumner ssumner
    27. August 2022 at 11:24

    Effem, You said:

    “Neither inflation expectations nor commodities had a particularly volatile day.”

    Obviously, you missed my point. I would not have expected those variables to be greatly affected.

    As for level targeting, the whole point is to make NGDP less volatile. Shocks to NGDP don’t just happen, they are caused by unstable monetary policy. With level targeting those shocks would be much smaller.

    “Feels like you and Scott are rooting more for a bull market than for the Fed to get inflation back on target.”

    If you keep trolling like that I’ll soon tune you out.

    Cameron, Yes, that nonsense has been around forever. I recall people saying the same thing in the 1970s, except they blame labor unions, not fiscal policy.

  16. Gravatar of Effem Effem
    27. August 2022 at 12:31

    Scott, no intention to troll, I get zero entertainment value out of that.

    But I do have what I think is a very valid and interesting question. One Powell speech puts the Fed 18bp further away from its primary objective (inflation back to target). Another speech puts Powell 4bp closer to it’s objective. Equities are volatile both days: the first speech upwards, the second speech downwards. The first speech you call a success the second you didn’t like.

    What is the missing variable that makes the first speech effective despite pushing the Fed much further from it’s primary objective. I feel like we are trying to target something we haven’t specifically articulated before…

  17. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    28. August 2022 at 04:43

    Paul Volcker was quoted in the WSJ in 1983 that the Fed: “as a matter of principle favors payment of interest on all reserve balances”…”on rounds of equity”. [sic]

    How did we get there? The last vestige of legal reserve and reserve ratio requirements against the Federal Reserve Note, demand deposit, and inter-bank demand deposit liabilities of the Reserve banks was eliminated in 1968. Today the Federal Reserve Note has no legal reserve requirements, and the capacity of the Fed to create inter-bank demand deposits (held at the District Reserve Banks), has no legal limit.

    Powell will never “bring inflation back down to our 2 percent goal”. It’s no longer just a demand side problem. It’s also supply-shock, supply-chain inflation, and natural resource inflation.

  18. Gravatar of ssumner ssumner
    28. August 2022 at 10:03

    Effem, Again, I suggested that it reduced tail risk. There’s more to life than TIPS spreads—risk of extreme events is a valid policy concern.

    BTW, TIPS spreads rose about 6 bp on the day of the Powell’s July speech. Are you referring to intraday moves?

  19. Gravatar of Effem Effem
    28. August 2022 at 12:26

    Went back to make sure I have the market moves exactly right. I’ll use 5y breakevens since that’s what you linked to:

    July 27 pre-speech to close: 5y breakeven rose 9bp 2.60 to 2.69.
    August 26th pre-speech to close: 5y breakeven fell 6bp 2.86 to 2.80.

    Agree there is more than inflation to be concerned with. But feels like this other variable is quite hard to define. Does it mean under/overshoots are corrected slowly so as not to jolt the economy either direction. So in the context of NGDPLT we’d need to define not just the level we are trying to achieve but the time frame we desire such that none of it happens too quickly.

    Certainly possible I suppose…just a new way of thinking.

  20. Gravatar of postkey postkey
    28. August 2022 at 13:49

    “The crisis now unfolding, however, is entirely different to the 1970s in one crucial respect… The 1970s crisis was largely artificial. When all is said and done, the oil shock was nothing more than the emerging OPEC cartel asserting its newfound leverage following the peak of continental US oil production. There was no shortage of oil any more than the three-day-week had been caused by coal shortages. What they did, perhaps, give us a glimpse of was what might happen in the event that our economies depleted our fossil fuel reserves before we had found a more versatile and energy-dense alternative. . . . That system has been on the life-support of quantitative easing and near zero interest rates ever since. Indeed, so perilous a state has the system been in since 2008, it was essential that the people who claim to be our leaders avoid doing anything so foolish as to lockdown the economy or launch an undeclared economic war on one of the world’s biggest commodity exporters . . .
    And this is why the crisis we are beginning to experience will make the 1970s look like a golden age of peace and tranquility. . . . The sad reality though, is that our leaders – at least within the western empire – have bought into a vision of the future which cannot work without some new and yet-to-be-discovered high-density energy source (which rules out all of the so-called green technologies whose main purpose is to concentrate relatively weak and diffuse energy sources). . . . Even as we struggle to reimagine the 1970s in an attempt to understand the current situation, the only people on Earth today who can even begin to imagine the economic and social horrors that await western populations are the survivors of the 1980s famine in Ethiopia, the hyperinflation in 1990s Zimbabwe, or, ironically, the Russians who survived the collapse of the Soviet Union.”

  21. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    29. August 2022 at 06:02

    Postkey, on point. But the FED more than validated the administered prices of OPEC.

  22. Gravatar of George George
    29. August 2022 at 07:26

  23. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    29. August 2022 at 08:22

    “Why Shrinking Central Bank Balance Sheets is an Uphill Task”

    “Fed Chairman Jerome Powell said in July that the reduction in the balance sheet could continue for “two and a half years.”

    The FED’s technical staff doesn’t know a bank from a nonbank. That’s why you watch the IOR in relation to short-term interest rates. But even that might not work:

    “which are often in the form of wholesale demand deposits and highly “runnable”

  24. Gravatar of ssumner ssumner
    29. August 2022 at 10:01

    Effem, Unfortunately, they are not doing NGDPLT, which makes it difficult to recommend any particular path.

  25. Gravatar of postkey postkey
    30. August 2022 at 00:02

    “Effem, Unfortunately, they are not doing NGDPLT, which makes it difficult to recommend any particular path.”

    When ‘one’ has invested his life’s work in only looking at one side of the economy then it is difficult to admit that doing or not doing NGDPLT is totally irrelevant?

  26. Gravatar of George George
    30. August 2022 at 04:43

    I always chuckle when those accusing others of X are guilty of it themselves.

    For example, smears against many readers of this blog that they are operating in an ‘epistemic bubble’.

    Let’s put aside for a moment the viciousness inherent in the dialectic logic IMPLEMENTED by the site owner, which is structured to treat human beings as NECESSARILY all behind epistemic firewalls, behind ‘identity’ logic allegedly cut off and divided from other people’s ‘identity’ logic, which makes the smears of ‘epistemic bubble’ especially vicious, as it is presented as if the readers decided to use that division logic.

    Let’s instead have a laugh at the accuser’s expense. The accuser of ‘epistemic bubble’ believed ALL THESE NARRATIVES designed to keep gullible trusting viewers like the site owner, IN AN EPISTEMIC BUBBLE:

    One way to understand the logic of this site, it would seem, is to take all the smears and slanders of others and what they’re TOLD they’re guilty of, and notice that the accuser is himself guilty of it all, and trying to ‘placate’ his own guilt by saying it’s not him it’s his readers.

    Another example:
    “Most people are confused about the meaning of truth. Truth is what people can get away with.”

    Is a psychological projection and INTRODUCTION of intentional inconsistency. It’s a simultaneous introduction of both what it claims as wrong, AND it advances that same wrong as a truth of reality as it is (including other people).

    That is precisely an expected output of the dialectic faith operating system. Outputting two opposites, or negations, advancing them as BOTH ‘true’, and then claim for itself Synthesis power, over how words are to be used, what definitions are to be used, and then the process repeats.

  27. Gravatar of George George
    30. August 2022 at 04:55

    I’m probably not the only one who notices that the dialectic being used by the site owner also explains why there are many posts smearing and slandering other people’s definition of ‘recession’, yet there is no definition advanced by the accuser.

    “period of time when output falls well below trend”

    is not a definition. In fact, I wonder if it was created by using

    “two consecutive quarters of negative GDP”

    as a template, and then CHANGING THE WORDS:

    “two consecutive quarters” => “period of time”
    “GDP” => “output”
    “below 0% growth” => “well below trend”

    The very definition the site owner ‘criticized’ (critical theory from Marxism) is the same definition used to source his waffling statement, both they both ‘rise up’ (Aufheben) and ‘sublated’ to produce a new synthesized definition that is the one inside his own head behind logic firewall, as the ‘new’ synthesis definition isn’t open source.

    It’s a one way consumption of information objects for the site owner’s own benefit only. Everyone else remains in the ‘thesis’ and ‘antithesis’ sides of the dialectic process.

  28. Gravatar of George George
    30. August 2022 at 06:20

    Posted by the FBI 10.8.20 – Agent Timothy Thibault describes the FBI’s role in stopping election fraud.

    Timothy Thibault was just perp walked out of the FBI building yesterday after whistleblowers came forward about what he did.

    This was the same guy who buried the Hunter laptop story in order to interfere with the election to help Biden win.

    “mOsT sEcUrE eLeCtiOn iN HiStOrY” narrative goes bust.

  29. Gravatar of Student Student
    30. August 2022 at 07:38

    George, log off the interwebs for a few months. You are so far down the rabbit hole, you don’t even see the surface anymore.

  30. Gravatar of George George
    30. August 2022 at 07:40

    Student, why are you accusing me of what you’re doing?

    You’re blinded by fake news op mockingbird.

  31. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    30. August 2022 at 08:33

    Alan Reynolds doesn’t know what he’s talking about, using spike in oil instead of the level of N-gNp (dependent on AD).

    It is true that a surge in the CRB index is preceded by a outsized increase in N-gNp.

    “Steve Hanke contended that “inflation is always caused by excess growth in the money supply — turning the printing presses on,” an economic doctrine known as monetarism, most famously espoused by economist Milton Friedman.”

    “That’s why, by the way, we’ll continue to have inflation through 2023, going into, probably, 2024,” he said.

    Hanke noted that his inflation model is pointing to price increases in the 6%-to-8% range for the end of 2022. He said the system suggests a 5% inflation rate at the end of 2023.”

    In contrast to today, we have both a supply-side and demand-side problem.

  32. Gravatar of George George
    30. August 2022 at 09:09

    Speaking of ‘tell me when it hurts’, Trump’s TruthSocial storm this morning is making fake news butthurt:

    LOL! Having fun yet?

  33. Gravatar of Student Student
    30. August 2022 at 10:43

    You’re a Qanon nut lol. Go back to your prior village in troll land. You are not going to convince anyone with even an inkling of a brain.

    You are like one of the Thule Society guys from 1920. Lol. Idiots.

  34. Gravatar of George George
    30. August 2022 at 13:59

    Student, here is a translation of what you just wrote: REEEEEEEEEEEE

    BTW, I don’t know what ‘Qanon’ is, lol. I’ve only ever seen that term on the very fake news sources that has made you fall asleep and turned into you into an NPC. And there you are parroting it as intended for you and every other fool who still trusts msm today.

    Here’s more for you:

    AG Merrick Garland has just illegally ordered all DOJ employees to CEASE COMMUNICATIONS WITH CONGRESS.

    Guess he’s afraid of whistleblowers?

    Why didn’t he put a gag order on all the DOJ employees illegally leaking to the media?

    (BTW, ultimately I don’t mind the low IQ name calling, it only shows the information is over the target, so do please understand that the more you name call and screech, the less and less seriously I take anything you say about the facts. To confirm, I could not care less how ‘convincing’ I am to you personally)

  35. Gravatar of George George
    30. August 2022 at 14:04

    When Paul Sperry speaks, it’s wise to listen.

  36. Gravatar of Student Student
    31. August 2022 at 07:43

    George, even your insults are cut and paste… reeeeee is the new things Qanon trolls say… Do you have any original thoughts or do you just copy everything you think and say from others?

  37. Gravatar of George George
    31. August 2022 at 11:55


    “George, even your insults are cut and paste”

    Nice projection AGAIN, Student. You’re literally copying and pasting all the buzz insult words from msm’s ‘qanon’ straw man.

    You’re suffering from the same narcissistic personality disorder as the site owner.

    Always accusing others of what you yourself are doing.

  38. Gravatar of George George
    31. August 2022 at 13:00

    All marching to the same beat = coordinated propaganda to keep public in the dark.

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