Our Deadhead Fed Head

Jerome Powell has flubbed inflation

“Sometimes the lights all shining on me. Other times I can barely see.”
- Trucking, by the Grateful Dead

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Federal Reserve Chairman Jerome Powell told us in 2021 that we needn’t worry about inflation. It was “transitory.”

“An episode of one-time price increases as the economy reopens is not likely to lead to persistent year-over-year inflation into the future,” he said then, blaming supply chain bottlenecks and other pandemic-era issues for shocking price spikes.

This week, a new snapshot of the economy piles onto the painful yet long-obvious reality that Powell was wrong, and may continue to be wrong, about the economy.

Fed Chair Jerome Powell. (Photo Credit: Federal Reserve, public domain, via Wikimedia Commons)

Inflation surges

The core Personal Consumption Expenditures index – the Fed’s favorite inflation gauge – rose at an annualized pace of 3.7% in the first quarter. That’s far better than the 7% mark it eclipsed in July 2022, but still well above the Fed’s 2% goal. (More detailed PCE data from the Commerce Department is due out today.)

We also learned that while inflation was running hotter than expected, the economy was running cooler than expected. The nation’s gross domestic product grew at a 1.6% annualized pace in the first quarter, the most sluggish growth in nearly two years.

Are you old enough to remember “stagflation?” It’s a term from the 1970s and describes the confluence of two terrible trends - stagnant economic growth and rising prices. Let’s hope that’s not where the economy is headed next.

Meantime, all those promises you’ve heard from Fed officials over the last year about interest rates possibly coming down have been more or less dashed.

The Fed raised rates to tame inflation and it’s not going to lower them while inflation is spiking higher. Some say policymakers could even raise rates more this year if high inflation persists.

The Fed will conclude its next policy meeting on May 1. The market puts the odds at nearly 94% that it will leave its key rate at the 22-year high of 5.25% to 5.5%. That’s according to the CME FedWatch Tool, which is based on Fed futures trading.

The Fed’s Fatal Flaw

Unlike so many other institutions, the Federal Reserve hasn’t suffered too many scandals (besides the one in 2021 when some officials got caught trading stocks in violation of Fed policy.

In my few dealings with Fed officials, I’ve found them to be well-meaning and thoughtful folks, but I also think they suffer from the fatal conceit that they can control the economy and predict the future.

Their easy-money policies that followed the 2008 financial crisis needlessly stretched all the way to the 2020 pandemic. Over 12 years, they shamelessly pumped trillions of dollars into the economy, contributing mightily to the inflation we face today.

The Fed’s zero-interest policies also enabled the Federal government to add tens of trillions of dollar to the national debt. Unfortunately, Uncle Sam didn’t lock in the sweet rates the Fed had set, and much of its debt has to be refinanced.

So now we actually need inflation

Good luck paying down a $35 trillion credit card tab in this new epoch of “higher for longer” interest rates. And we may never be told the truth about this debt: That we can only hope to inflate our way out of it.

The Fed gets some credit for bringing down inflation quite a bit and avoiding a recession following the pandemic. But its interest-rate hikes have made housing unaffordable for millions of Americans and they have made it much harder for cash-strapped consumers to get out of debt.

Three years in, and the central bank’s inflation fight is far from over. And given the Fed’s track record, why should we believe them going forward?

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Shakedown Street

I went to about a dozen Grateful Dead concerts from the late 1970s through the mid-1990s, when band leader Jerry Garcia was still alive. Love the music. Love the scene. But never did I think anyone in this crowd of peace-loving, weed-smoking, acid-dropping hippies should drive themselves home, let alone climb behind the wheel of the entire U.S. economy.

I can only suppose it’s better than putting an Insane Clown Posse fan in charge.

During Congressional testimony last year, a lawmaker asked Powell for his review of a recent Dead & Co. show that he was spotted attending.

“It was terrific,” he replied. “I’ve been a Grateful Dead fan for 50 years.”

This is the one thing I actually admire about Powell, particularly given my own affinity for the Dead.

It’s one of the few glimpses we’ve gotten into his character that shows he’s human – and humans can make blunders.

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Blues for Powell

The Grateful Dead created a rich legacy of lyrics that, like Bible verses, can be applied to almost anything.

I’m not sure how much they play into Powell’s thinking about the economy, if at all, but a lot of really choice lines came to my mind when I first learned Powell was a Deadhead.

I’ve listed them here. I’m sure I missed quite a few, so if you have any favorite lines, please leave them in the comments.

“I'm Uncle Sam. That's who I am; 
Been hidin' out in a rock and roll band.”
– U.S. Blues

“‘Cause when life looks like Easy Street, there is danger at your door.”
– Uncle John's Band

“Well, I ain't always right but I've never been wrong.
Seldom turns out the way it does in a song.”
– Scarlet Begonias

“If the thunder don’t get you, then the lighting will.”
- The Wheel

“Pace the halls and climb the walls and get out when they blow.”
- Ramble On Rose

“No one could steer me right, but mama tried.”
- Momma tried

“It was later than I thought
When I first believed you.
Now I cannot share your laughter
Ship of fools.”
– Ship of Fools

“And now the die is shaken, now the die must fall.
There ain't a winner in the game, he don't go home with all.”
– Jack Straw

“Goes to show, you don't ever know,
Watch each card you play and play it slow.”
– Deal

“Talk about your plenty, talk about your ills,
One man gathers what another man spills.”
– St. Stephen

“You can look around about the wide world over
And you'll never find another honest man.”
–Loser

“One way or another,
This darkness got to give.”
- New Speedway Boogie

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A de-motivational thought for the day

Whatever you’re driving, there’s always somebody driving something better. And why stop at just one luxury vehicle? Always buy more. (Photo Credit: Al Lewis)

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