Senator John Kennedy (R-LA) criticized Federal Reserve officials for inaccurate inflation forecasts. Last Tuesday, he scored Chairman Jerome Powell for insisting that inflation remains transitory.
Fed’s Inflation Forecasts As Unreliable As Late-Night Psychic Hotlines
Powell appeared before the Senate Committee on Banking, Housing and Urban Affairs last Tuesday. Members took turns grilling Powell, who appeared alongside Treasury Secretary Janet Yellen.
Senator Kennedy went after the central bank forecasters. He said that these officials failed to accurately project inflation. As a result of inflation forecasts going wrong, the agency lost credibility.
“I realize that no one is clairvoyant, but I think it’s fair to say that the experts who have been advising you about the future rate of inflation have pretty much the same credibility as those late-night psychic hotlines you see on TV,” Kennedy mused.
Powell Pointed To Failure in Anticipating Supply-Side Problems
Powell said that the Fed’s inflation forecasts did not consider supply-side problems. Growing supply chain issues, a labor squeeze, and higher wages helped raise prices.
He said that the agency “didn’t predict the supply-side problems” such as the disruptions above. “Those are highly unusual and very difficult, very non-linear, and it’s really hard to predict those things,” he explained.
Powell recently received a reappointment from President Joe Biden. This means he’ll serve for another four years after his term expires this February.
He said they will consider fast-tracking bond purchase tapering. Specifically, he said that the agency will discuss it during their monthly meeting. “We now look at an economy that is very strong and inflationary pressures that are high and that means it is appropriate,” he said.
Powell Wants To Retire The Word “Transitory”
In addition, the Federal Reserve chairman suggested to lawmakers that the agency will stop referring to current inflation rates as transitory.
This was in response to a question by Senate Banking Committee Ranking Member Pat Toomey (R-PA). He asked Powell “How long does inflation have to run above your target before the Fed decides, maybe it’s not so transitory?”
Powell said that while the word has “different meanings to different people,” the Fed used it to mean “it won’t leave a permanent mark in the form of higher inflation”.
During briefings and press conferences earlier this year, inflation forecasts coming from the Fed often carried a “transitory” description.
Now, Powell acknowledged that the term doesn’t seem applicable at this point. “I think it’s — it’s probably a good time to retire that word and try to explain more clearly what we mean,” Powell added.
Omicron Can Raise Inflation Concerns
Meanwhile, Powell expects the Omicron coronavirus variant to intensify inflation concerns. The threat of the new COVID-19 virus strain can hold back workers from rejoining the labor market.
This in turn can spur additional supply chain problems. The rise of cases and the addition of the Omicron variant poses “increased uncertainty for inflation,” Powell said.
Watch The Hill’s video reporting on ‘Same Credibility As Late-Night Psychic Hotlines': Fed Chairman Jerome Powell Grilled Over Inflation Predictions:
What do you think of Senator Kennedy’s admonition of Federal Reserve inflation forecasts? Do they deserve getting lumped together with late night psychic hotlines?
Let us know what you think about the Federal Reserve and their projections on inflation. Share your comments below.