Speech by Chair Powell on monetary policy and price stability

I&#x27;d like to find numbers which illuminate how much of the inflation is caused by lack of supply for relatively inelastic commodities. If the way out of shortages is to invest in more production, higher interest rates seems detrimental in the face of that type of inflation. If, on the other hand, inflation is caused by groups&#x2F;individuals buying lots of silly things because they are flush with tons of cash, then rising interest rates should put a stop to speculative&#x2F;impulse elastic spending.<p>To me, it seems an important distinction whether &quot;excess&quot; cash is going towards buying elastic goods&#x2F;services (peloton cycles, fancy grills, RTX3080 for gaming, etc) or simply fighting over shortages of inelastic goods (baby formula, bacteriostatic water, shipping space, gasoline, etc).<p>I suspect that our largest improvement would come from investment in transportation infrastructure for goods -- all of that is super choked right now and it affects everything.<p>Many people are concerned about the rising price of real-estate and I agree, but I&#x27;m not sure interest rates are fine-grained enough for this...ideally Congress could address that with Anti-NIMBY legislation and&#x2F;or taxes on properties which are not lived in by their owners, which could be directly redistributed to anyone who purchases a new home.

I made a little side project <a href="https:&#x2F;&#x2F;totalrealreturns.com&#x2F;" rel="nofollow">https:&#x2F;&#x2F;totalrealreturns.com&#x2F;</a> to plot inflation-adjusted asset and asset class returns, including the USDOLLAR virtual symbol which represents a nominal dollar. (Most users just enter symbols they care about, though.) In real (purchasing power) terms, I think this announcement means:<p>1. The Fed thinks the green line is declining too fast. (Green line = purchasing power of a nominal USDOLLAR, such as a paper dollar bill, or a zero-interest checking account.)<p>2. In order to make the green line flatten out a bit, we&#x27;re going to raise interest rates more, reducing the supply of capital.<p>3. In the short-term to medium-term, raising interest rates will have an adverse effect on the blue line (bonds), due to interest rate sensitivity.<p>4. In the medium to long term, the effect on bonds may in fact be positive due to higher interest rates, but this depends on future Fed actions as well. (It seems to me structurally unlikely to create substantially positive real retuns for treasury bonds, at least. Maybe corporate bonds will benefit.)<p>5. Raising interest rates is intended explicitly to reduce aggregate demand in the short-term to medium-term. This reduces corporate revenues and corporate profits, which should hurt the red line (equities).<p>6. Raising interest rates also increases the discount rate which is applied to net-present-value (NPV) calculations, which means that future cash flows are discounted more heavily. This should also hurt the red line (equities).

At the height of the gas prices I paid $8.00 per gallon of diesel for several weeks (some drunk asshole totaled my other non-diesel vehicle) so I felt what truck drivers felt. It should be no surprise that when gas doubles, everything that is carried on those trucks goes up in price. When the truck is carrying super cheap items, the price of those super cheap items is roughly double. Transportation cost of expensive and small things aren&#x27;t affected as much because the price of gas was already a smaller percentage of the overall price.<p>Large items, like RVs saw a roughly $4k markup (in CA) because they literally drive each one from Indiana. Not to mention everyone is buying them because they are alternatives to expensive homes now.<p>We really need to get off gasoline and encourage people to build. Messing with inflation with the feds &quot;only tool&quot; is fucking idiotic.

Here is my view on inflation:<p>1: The root of inflation is the printing of money<p>2: No government will reduce the printing of money. It is just too convenient. It is like taxing more and more without getting much complaints.<p>3: Governments will rather use tricks to lower inflation. Change the definition. Make laws to restrict prices. Subsidize the production of goods to make them cheaper.<p>Conclusion: The value of money will go down the drain faster and faster forever.

&gt; Inflation feeds in part on itself, so part of the job of returning to a more stable and more productive economy must be to break the grip of inflationary expectations.<p>There were several months where officials continued to refer to inflation as &quot;transitory,&quot; when it was obviously anything but. I wonder how much that was deliberately misleading, in an attempt to stem inflation by adjusting people&#x27;s expectations. And I wonder how bad it might have gotten if officials had told the full truth.

Can someone more fluent in economist-speak please help explain what was said here?

The more I&#x27;m watching this show, the more I think that it&#x27;s just trimming excess wealth off the middle class.

What is the general recommendation for buying a house in this economic climate? Hold off until interest rates go down or just buy if you are ready and not time the market?

He mentioned the 1970&#x27;s and 80&#x27;s five times, which was a period of high inflation, high rates and civil unrest.<p>From <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Paul_Volcker#Chairman_of_the_F" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Paul_Volcker#Chairman_of_the_F</a>...:<p>&quot;Volcker&#x27;s Federal Reserve board elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of high interest rates on the construction, farming, and industrial sectors, culminating in indebted farmers driving their tractors onto C Street NW in Washington, D.C. and blockading the Eccles Building. US monetary policy eased in 1982, helping lead to a resumption of economic growth&quot;<p>TL;DR it&#x27;s going to get ugly

For as long as I can remember, there has been a vocal group of doomsayers predicting financial catastrophe. Powell&#x27;s speech is like catnip to that group.