When Powell gave testimony to the House Financial Services Committee, I had the TV on and tuned in, but was busy working and I didn’t manage to catch very much of it. I saw what markets did afterward, however, and figured I probably didn’t need to know what he said exactly to understand what was going on.
Of course this market reaction was similar in pattern to what we’ve seen over the last few years when a hawk gives a speech: the exchange rate of the dollar appreciates and markets take a hit. This is different from the very recent volatility: the dollar exchange value would depreciate and markets take a hit, a pattern sort of similar to what we saw the pound do on Brexit only less dramatic.
I can’t help but wonder if Powell intended to exacerbate whatever may be going on on the supply side as indicated by the recent volatility, but it looks like he did just that. So much for the ambiance of feeling better about monetary policy because not allowing supply side reallocations to modestly raise inflation as appears to be what was happening over the last few weeks is not a good thing.
I’ve been working on a magnum opus to explain why I think IT is a really bad idea. It isn’t ready for prime time yet; it’s still too wordy and repetitive, but the issue of reasoning from a price change being baked into the regime and the damage it does is one of my main points. See inflation, then kill inflation without understanding what is causing it does nothing but spread the pain of inefficiencies that are better off (and we are all better off) if left to work themselves out.
I could go on about how this is just really a terrible way to run the “railroad.” But think it’s probably better left to saying that it’s just more of the same stupid stuff, different guy.