Our Jackson Gap speech

Good morning. Walmart’s CEO Doug McMillon didn’t maintain again on the influence of tariffs on his firm’s earnings name yesterday — prices had been growing by the week, he stated. The large-box retailer managed to maintain its in-store inflation fee final quarter decrease than that of the general US inflation fee. However how lengthy can that final?

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Our Jackson Gap speech 

The eyes and ears of the market are on Wyoming, the place later at the moment Federal Reserve chair Jay Powell will give a speech on the central financial institution’s annual summit. We don’t know what Powell will say or whether or not it should lean dovish or hawkish relative to expectations. We do know what we expect he ought to say, nonetheless. So right here’s a punchy little discuss we’d like to listen to the chair give:

“Ladies and gentlemen, I hope you will forgive me, in this beautiful western setting, if I use a somewhat hackneyed regional metaphor: This ain’t my first rodeo. I’ve been Fed chair since 2018, and spoken at these gatherings every year since. So this is, to be exact, rodeo number eight for me.

Number eight will be my last. My time in this job (though not my time at the Fed) ends in May. And at this late point in my tenure, I hope you’ll forgive me if I speak a bit more freely, plainly and succinctly than I have in the past. I’m going to try to talk in a way that more Americans can appreciate, because I think this is a particularly important moment for citizens to understand what we do at the Fed and on the Federal Open Market Committee in particular, and why what we do is important for our common prosperity.

So the economists watching from home can put away your Fed Speech Bingo cards: I won’t be mentioning anchored expectations, dual mandates, symmetric objectives or inflation targeting. Instead, I have two simple topics to address today. The first is cutting interest rates. The second is cutting the bullshit.

I’ll start with rates. The last time I spoke here, my team and the members of the open market committee and I felt pretty good — or rather, we felt a sense of relief. We had experienced a real inflation scare, the severity of which we underestimated at first. But we had changed course aggressively, and things were at last trending definitively in the right direction, in terms of both inflation and jobs. ‘Inflation is now much closer to our objective, with prices having risen 2.5 per cent over the past 12 months,’ I said then. The labour market, I said, ‘has cooled considerably from its formerly overheated state’ and the small increase in the unemployment rate ‘mainly reflects a substantial increase in the supply of workers and a slowdown from the previously frantic pace of hiring’.

A year on, the picture is much harder to read. We know the number of new jobs the economy is creating has slowed markedly, and this is a very serious concern. What we don’t know with any certainty is how much of that has to do with falling demand for workers, and how much stems from the falling supply of workers — a falling supply resulting from both changing immigration patterns and a native-born workforce that is getting older. That’s why, as I have said before, the key measure of the job market now is the unemployment rate, which attempts to capture the supply as well as demand. The rate is rising, but remains low compared with most periods in the past, and far from the levels we see in recessions. At the same time, other indicators are consistent with a mild slowdown. To be quite plain, we don’t know exactly what is going on with the jobs market, but we are concerned, and we are waiting hungrily for more data to trickle through in the coming weeks.

Meanwhile, we have made no progress on inflation in the last year. In fact, we are moving backwards. On our preferred measure, which excludes some volatile prices in the hopes of seeing the underlying trend more clearly, inflation on the goods side of the economy, which was below zero until recently, is rising quite quickly. Just as importantly, on the services side of the economy, where we never brought inflation back down to an acceptable level, we have stopped making progress. There are a million ways to analyse the numbers. But inflation is rising again, period. American families know it. No theoretical arguments about how much of the increase is down to tariffs, and whether it will be a one-time effect that will change that hard fact. 

Given the concerning and confusing signals coming from the jobs side, and the bad signals on the inflation side, cutting rates, or not, is no easy call. There has been a certain amount of chatter about the two people on the FOMC who dissented from the decision to hold rates steady at our last meeting. But that is just the committee doing what we do: looking at the information we have, presenting our arguments to one another, and taking a vote. The other nine members of the committee were firmly against cutting, but the dissents argued well and in good faith. They are evidence that the process, at a difficult time, is working exactly how it is meant to.

Which brings us to my second point, cutting the bullshit. There has been a lot of talk about the end of Fed independence and about the politicisation of the bank. This talk is way out of line — and not because the Fed is not under political pressure. It is under pressure, as it has been for most of its history, sometimes more acutely, sometimes less. Those who would paint the current situation as unprecedented might want to read about the Fed during the administrations of, say, Lyndon Johnson or Richard Nixon. If the late, great Paul Volcker was here, he’d tell you Ronald Reagan was no cupcake, either. 

The Federal Reserve is designed to withstand political pressure, and this design is written into laws that have been affirmed and reaffirmed by our highest courts. The terms of Fed governors are almost twice as long as a two-term presidential administration. We control much of our own budget, and so on.

Those who worry that the president will appoint a Fed governor who cares more about the administration’s agenda than the long-term prosperity of the country, I would note that Fed independence has another important protection: the judgment of history. Those in the audience who have served as central bankers, here or elsewhere, know what I’m talking about. We know that we will not be remembered kindly for loyalty to party or president. If we do not put the country first, and focus on the mandate that the country has given us, we can only be remembered as fools or villains.

The Federal Reserve Bank of the United States is strong, is focused exclusively on the prosperity of the people of this country, and will never willingly surrender its independence, which has served this country so well. First rodeo or last, we are ready to ride. Thank you.”

One good learn

The demise of American exceptionalism has been significantly exaggerated.