A flurry of government officials have been preempting tomorrow’s producer price index (PPI) data release by making speeches to the public or press. I’m going to highlight the two big ones that stood out to me.
Yesterday, New York Fed President John Williams spoke via teleconference at St Lawrence University. The transcript can be found here. While he only said the word “bottleneck” once, he said the word “inflation” 28 times. At one point he emphasized the employment goal of the Fed and where he sees it at.
“But I cannot stress enough that we still have a long way to go to get back to our maximum employment goal. For example, there are still over five million fewer jobs today than before the pandemic, and the unemployment rate is still far above the levels reached early last year.”
When he got to addressing inflation, he stuck with the transitory line.
“Recent data show core inflation, which excludes volatile food and energy prices, running at about 3-1/2 percent, which is well above the Federal Reserve's longer-term 2 percent goal. Taking a closer look at the data, it's clear that this spike in inflation largely reflects the transitory effects of the rapid reopening of the economy, which is pushing supply and demand in extreme ways. As the economy gets through these unusual dynamics, I expect inflation to come back down to around 2 percent next year.”
He then detailed a calculation of the inflation rate that he uses.
“One simple way to get a better read of inflation that is not overly influenced by these big swings in prices is to take the average inflation rate from the start of the pandemic. That calculation shows that core inflation has averaged 2-3/4 percent since February of last year.”
Get that? Since inflation has been really hot lately, lets just add in a few month when the inflation rate wasn’t so hot and average it over that time period.
He finished his address by recapping the Fed’s policy goals and where he sees them. He also addresses the timing of the taper.
“Given what I explained earlier, I think it's clear that we have made substantial further progress on achieving our inflation goal. There has also been very good progress toward maximum employment, but I will want to see more improvement before I am ready to declare the test of substantial further progress being met. Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year.”
Remember, Pres Williams is a big player at the Fed. He might not get the press headlines Powell gets but do not doubt for a second that Williams views hold significant weight at the FOMC table. I would consider him one of the top four monetary policy influencers in the US. The other three being Powell, Clarida, and Yellen.
Yesterday also saw a bizarre press conference put on by White House National Economic Council Director Brian Deese. He told reporters that beef, pork, and chicken processors were the reason grocery prices were so high. I’m shocked he didn’t throw farmers under the bus too. He was adamant that since there are only a handful of processors that they are controlling the market.
“Just four firms control approximately 55-85% of the meat market”
and that..
"It raises a concern about pandemic profiteering, about companies that are driving price increases in a way that hurts consumers who are going to the grocery store”
No thought was given to why only four firms control the majority of the market. There was no cares given to the massive amount of red tape from government agencies that inhibit start-ups in the meat processing business. Also, no consideration is given to the Fed’s role in all of this.
Deese was skewered on twitter for his completely absurd argument.
These kinds of speeches tell me that inflation is not as transitory as government officials want it to be. Inflation prints (PCE, PPI, CPI) have been hot and that heat is now being felt. We are already at the stage where blame is being laid at those that bring product to market. I would not be surprised to see some kind of regulations or price controls come next. We are in for dangerous times. Biden’s polling numbers have looked atrocious. The Dems know that they are in big trouble. The pressure to “do something” about the inflation issue will be unbearable for them.