It’s Not Just Powell

By: Robert Aro

As the face of the organization, Federal Reserve Chair Jerome Powell should bear the brunt of anyone’s perturbation over the central bank’s anti-capitalism stance. However, it’s not just Powell who seems to be out of touch with the majority of Americans. On Thursday, the newest Fed Governor, Christopher J. Waller, gave a speech on his outlook and monetary policy at Drexel University.

Housing is becoming less affordable, and that price increase has the biggest effect on low-income individuals and families who have struggled the most since last spring and who are always the most vulnerable to rising rents and home prices.

So far, so good! In fact, it’s refreshing that a central banker acknowledges how those with the lowest incomes have the toughest times amid rising prices. Unfortunately, he follows with:

Prices for lumber and other inputs for housing are skyrocketing, and while that occurrence is not having a significant effect on inflation, it is limiting the supply of new homes and helping feed the house price boom.

Despite acknowledging lumber and other inputs are “skyrocketing,” it’s unclear why he claims they don’t have significant effects on inflation. It’s more troubling he doesn’t seem to understand the Fed’s role in the increase in housing prices. Neither artificially low rates nor many trillions of dollars in mortgage-backed securities and US treasuries owned by the Fed make it into his analysis of the housing market.

He concludes, fortunately, the banking system is “strong and resilient” and that:

Nevertheless, I am watching this sector closely for signs of stress and will continue to do so.

One would think if the banking sector was in good shape, the Fed would no longer need to continue with its highly accommodative policy and various intervention strategies.

The day before the Governor’s Speech Federal Reserve Vice Chair Richard H. Clarida similarly left baffling remarks at an economic symposium in Washington, DC about what the economy faced in 2020:

more than 22 million jobs were lost, wiping out a decade of employment gains; the unemployment rate rose from a 50-year low of 3.5 percent in February to almost 15 percent in April; and inflation plummeted…

Consider the context behind the quote, paying special attention to the phrase: “and inflation plummeted…”

According to Clarida, last year, when 22 million people were out of the workforce (largely due to forced government shutdowns) the prices of goods and services decreased.

To the Vice Chair, it was bad that, in the middle of the greatest economic crisis since the Great Depression, prices went down!

According to his (and the Fed’s) logic, if prices were able to somehow increase, life would have been better for the nation as a whole. Should we use the fallacy of the Phillips Curve? If prices were able to increase more during the crisis, more jobs would have been created. There is a trade off between inflation and employment.

It doesn’t take an advanced degree in economics to understand that for the 22 million people unemployed, the last thing they need are further price increases. As for those fortunate enough to have kept their job during the crisis, a very real question can be asked:

Who, other than central bankers, actually want prices of goods and services to perpetually rise?

College tuition, internet, cable, gas, food, travel, medical, your Netflix subscription to name a few… when one just stops to think, it doesn’t make sense how we live in a world where the unaffordability of life and loss of the dollar’s purchasing power is considered a virtue by society’s best and brightest.

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