Powell’s partial truths “A big part of inflation is related to the pandemic” gold silver Wagner
The partial truth and nothing but the partial truth is a realistic way to characterize some of the statements made by Chairman Powell during an interview he held today with billionaire David Rubenstein. One of his statements that made many economists uneasy was, “A big part of inflation is related to the pandemic”. Powell’s statement was 100% truthful, however, not the whole story.
Assuming that inflation was transitory and would ease naturally is why the Fed did not act, this caused inflation to peek at 9.1%. Had they acted when inflation was at 1.7% in March 2020 or 2.6% which occurred in May 2020, inflation could have been effectively controlled with a series of small rate hikes taking the Fed’s benchmark rate to 2 ½% equaling the rate of inflation during that time?
Although the challeges the fed faced was unforeseeable, this black swan event occurred for the 1st time in the modern age. The Fed had no historical model to deal with it. They did however have models from multiple period of high inflation. Therefore the Fed has been in crisis mode correcting its fatal misstep. This is the primary component that forced the Fed to transition to the aggressive policy in place now. It is correct because it is the historical model that has worked by Federal Reserve officials successfully.
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