Thoughts From The Divide – Fed Pushback

“Supply side will take a little bit of time to adapt”

While the FOMC left both rates and its asset purchases unchanged, rolling along with a “business as usual” feel, the post-meeting press conference took on a different tone. Yes, there was some of the usual obsequiousness and questions about whether Powell was going to visit the homeless camped out near the Eccles building. But there were also some unusually pointed questions regarding a number of themes we’ve covered in these pages.

The first theme that saw significant pushback was that of inflation. Naming Larry Summers and company, who “think the Fed might be, might let things get out of hand with the new policy stance”, one reporter asked “what is different this time” versus previous inflationary periods. Clearly anticipating this question, Powell took to his notes, citing base effects and bottlenecks as the sources of “upward pressure on prices”, but assured the audience that the Fed was “prepared to use our tools”. Powell did however admit that the Fed wasn’t sure how long “it will take to resolve the bottlenecks” in the economy amid demand “spurred with fiscal transfers” (here’s looking at you, Personal Income).