The Fed Chair who cried "wolf"

Posted by: Paul Donovan

22 Jun 2022 2 min read

Daily update

  • US Federal Reserve Chair Powell testifies to Congress. Powell’s policy style is more the bumbling of former Fed Chair Burns than the shock and control of former Fed Chair Volcker. Inflation control today is less about wages and more about profits and pricing power. But the questions for investors are: Has consumer price inflation (or just gasoline prices) become the inflation target? With forward guidance trashed, why should anyone believe anything Powell says?
  • Markets are flip-flopping between recession fears and inflation fears. Today it is recession fears. Real wage growth is terrible in most major economies. However, consumers are cutting savings rates or increasing borrowing in order to support demand—limiting the growth slowdown. The reduced saving/increased dissaving depends on job security.
  • The UK offers assorted price data, expected to be generally stable. The UK is not a good example of global trends, as inflation is complicated by utilities pricing and the interminable EU-UK divorce. However, some parts of the UK inflation basket are near or in deflation (e.g., with discounts being offered on books written by certain economists).
  • The ECB meets with a non-policy meeting, following their non-emergency emergency meeting. Euro consumer sentiment is due, but what consumers say differs significantly from what they do.

Explore more CIO Daily Updates