Powell’s Attempt To Talk Down Inflation Will Fail

Powell’s Attempt To Talk Down Inflation Will Fail

Powell may be forced to lower rates while inflation remains elevated.

Price inflation as measured by CPI won’t get down to the Fed’s 2% target without unemployment rising if history tells us anything (See below chart: Unemployment Rate = Red, CPI = Green).

Source: click here to enlarge chart.
  • Core CPI will likely remain above 4% when October CPI data is released on November 14th, well above the Fed’s 2% target.
  • The Fed will be forced to lower rates in 2024 as the Treasury debt load has grown to such an elevated level ($33.7 Trillion). The U.S. simply can’t afford to carry $33.7 Trillion in Treasury debt at a 5% Fed Funds rate. The interest expense on the Treasury debt is crowding out Government spending and the only thing Washington’s politicians are good at is spending other people’s money.
  • Therefore, Powell will face enormous political pressure to lower rates.
  • However, it is not clear that inflation/CPI will decline to the Fed’s 2% target before the Central Bank lowers rates.
  • A looming recession will likely get CPI down to 2% or lower if the monetary and fiscal powers that be (the Fed on the former, Treasury on the latter), allow a recession to persist before pumping the economy full of inflation-inducing artificial stimulus.