Despite all that can be said about the Consumer Price Inflation (CPI) calculation, a reading of 7.5% is relatively high compared to the last 40 years. On Monday the Federal Reserve will have a closed door meeting “held under expedited procedures” for:
Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.
It sounds like an emergency meeting but the Fed regularly schedules these meetings to deliberate ways of intervening in the economy. Perhaps it was speculation over an emergency rate hike which prompted Fed officials to remark that there is no intention for an emergency rate announcement. Bloomberg reports St. Louis Fed President James Bullard:
…said the Fed isn’t “in that mode” of emergency rate hikes, noting that there is little need to surprise markets now given the tightening they are pricing in already.
Barring any surprises, there will likely be no rate hike for another month, allowing time to consider a few ideas of interest, and for lack of a better word, absurdities with this system.
The Fed and mainstream media claim that supply issues and bottlenecks related to reopening the economy are to blame for the increase in prices. Just last month, Powell reiterated:
Supply and demand imbalances related to the pandemic and [to] the reopening of the economy have continued to contribute to elevated levels of inflation. In particular, bottlenecks and supply constraints are limiting how quickly production can respond to higher demand in the near term.
Putting the blame on reopening the economy and bottlenecks indicates no signs of slowing down. It’s only funny for so long, until one realizes how empty these words are. We’re supposed to believe that reopening an economy takes 3 years and not 3 days. Nonetheless, this is supposedly the cause for the increase in prices of fruits, vegetables, quarter chicken legs, lumber, and gasoline.
Even if they discuss bottlenecks during closed door meetings, using top secret data, it’s still a system prone to calculation problems and corruption. The goal of blaming everything else, except the Fed’s easy money policies, on the increase in prices knows no bounds.
Yet narratives aren’t enough. A research component is required to lend further credibility. Recently the St. Louis Fed published a paper titled: Global Supply Chain Disruptions and Inflation During the COVID-19 Pandemic. The abstract opens by stating:
We investigate the role supply chain disruptions during the COVID-19 pandemic played in U.S. producer price index (PPI) inflation.
The conclusion is that foreign supply chain issues lead to bottlenecks and higher prices domestically. They were uncertain as to whether it was temporary or permanent, but had conviction vaccines would play a vital role:
The unequal distribution of vaccines in emerging countries, the rise of new variants, and disruptions in shipping could add some additional pressure on supply chains, creating pessimism about inflation disappearing in the near future.
How these research reports, narratives and policy decisions get the greenlight is known to less people than fingers on your hands. Adding insult to injury, even if they were correct about the cause of our price increases, nowhere have they explained why increasing interest rates would make matters any better. If bottlenecks and reopenings are the cause of (price) inflation, then raising rates is the cure!
For all we know, they could be laughing behind closed doors because in all honesty, being a central banker is phenomenal work, if you can get it; the power, acclaim, salary, security and near immunity is something the masses will never know, but for which the masses pay dearly. Of all the absurdities mentioned above, never forget that under a free market system, there would be no central bank. Even better, all the “economists” who write research papers exploring bottlenecks using linear regression models would quickly find it no longer pays to be an economist.
