(Reuters) – Federal Reserve Chairman Jerome Powell’s message on inflation and interest rates at this year’s Jackson Hole, Wyoming central bank meeting will be nothing like the soothing tone he used at the same event a year ago https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm.
At the time, Powell used a series of charts to illustrate why he expected price pressures to ease and argued that an underemployment and pandemic-hit country needed continued support from the U.S. central bank.
Fast forward to this week, and while the majestic mountain backdrop of Jackson Hole remains the same, the economic landscape has changed: The Powell-led Fed is battling high inflation and is year.
Powell will speak in the morning EST 10 (1400 Greenwich Standard Time) Friday.
Here’s the underlying data from Powell’s paper a year ago, and how things have played out since then.
Chart: U.S. payrolls rose sharply, but not as big – https://inew.news/wp-content/uploads/2022/08/localimages/chart.png63072601debfe.png
Chart: US labor market looks tight – https://inew.news/wp-content/uploads/2022/08/localimages/chart.png63072602bc2cf.png
What Powell saw a year ago: US employers are adding 832, 000 a month of jobs, but the labor market still has “considerable room to spare” to achieve the Fed’s maximum employment goal. The 5.4% unemployment rate is “too high” and even understates the slack in the labor market. “We also want to see continued strong job creation,” he said.
It turns out: U.S. employers are hiring at a more modest pace than data at the time suggested, but job creation continues to be strong, May exceed Powell’s expectations.
The gap with full employment levels has narrowed rapidly, in part because rising COVID-19 cases have not slowed spending, as As expected, workers marginalized by the pandemic have not rushed back into the labor force.
Unemployment is now at 3.5%, the same as the 50 year low. But even that number may underestimate how tight the labor market is. While most Fed policymakers estimate full employment at around 4.5 percent, “my own gut feeling is that the natural rate will be higher,” Powell said last month.
Chart: Expanding Inflation – https://inew.news/wp-content/uploads/2022/08/localimages/chart.png63072603ae36a.png
What Powell saw a year ago: Inflation appears to be confined to a “relatively narrow category of goods and services” economy affected by the pandemic and reopening, but broad indicators of price pressure look mild. “We would be concerned about signs that inflationary pressures are spreading more broadly across the economy,” he said.
It turns out: they do spread. The Dallas Fed-adjusted average personal consumption expenditures inflation rate, a measure cited by Powell in his speech last year, is one of several gauges of broad-based inflation, as price pressures spread from products like used cars and home gym equipment to widespread consumer goods and services.
Chart: Pressure on global supply chains has eased – https://inew.news/wp-content/uploads/2022/08/localimages/chart.png630726049aacb.png
Graphics: changing patterns of inflation – https://inew.news/wp-content/uploads/2022/08/localimages/chart.png630726058842a.png
Inflation: rising prices FALLING FALLING
What Powell saw a year ago: Prices for high-inflation goods like used cars are slowing. “It seems unlikely that durable goods inflation will continue to make a significant contribution to headline inflation over time,” he said. “Upcoming data should provide more evidence that some supply-demand imbalances are improving.”
Facts: Inflation in the durable goods category has only recently retreated, peaking later than expected, in part because Yes
At the same time, service inflation is adding to overall price pressure as people shift from buying goods to spending more on travel and dining.
Graph: Overall wage growth accelerates – https://inew.news/wp-content/uploads/2022/08/localimages/chart.png6307260679e3a.png
Wages: Nothing to see here
What Powell saw a year ago: Data show ‘moderate’ wage growth, “little evidence that wage growth could threaten hyperinflation , ” He says.
As it turns out: Pay has risen sharply, and a broad measure of wage growth that Powell has promised to carefully monitor jumped from just above the Fed’s 2% inflation target to more than 5%. That’s still below headline inflation, but the central bank may be less optimistic now about the possibility of a 1970-style wage price spiral than it was then.
Chart: Inflation expectations climb – https://inew.news/wp-content/uploads/2022/08/localimages/chart.png63072607714b1.png
Inflation expectations: Inclusive?
What Powell saw at the time: Households and businesses seem to agree with his own view that inflation will prove to be temporary – they don’t expect inflation or 10 was well above the Fed’s 2% target. This means that the central bank can safely “see through” near-term inflation without worrying about it getting into the American psyche.
Facts: Long-term inflation expectations have risen, which is one reason the Fed became more aggressive in June, the first of which was oversized 75 – basis point rate hike.
Chart: Global Inflation Rising – https://inew.news/wp-content/uploads/2022/08/localimages/chart.png63072608141cf.png
Global inflation: benign?
What Powell saw a year ago: For decades, technology, globalization, aging populations, and central banks’ determination not to let inflation get out of hand The rationale is that these underlying trends “suddenly reverse or weaken.” Powell showed a chart showing low inflation in most advanced economies.
It turns out: things have changed.
In the conference room where Powell spoke on Friday, global central bankers tasked with reining in price pressures over the past year will be watching every line on his chart closely.