Powell-Style Party

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TL/DR –

The article discusses Federal Reserve chair Jay Powell’s hope for a positive inflation report and the variables that could affect this outcome. The author identifies four main factors: the state of the US economy, the global economy, the climate transition, and technology. The text concludes that while it is possible Powell may achieve his goal of keeping inflation under control, the situation is too unpredictable due to many external factors, including political instability, the unpredictability of the climate transition, technological disruptions, and global events.


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Decoding the Federal Reserve’s Stance on Inflation

In a recent talk, Jay Powell, Federal Reserve chair, expressed his excitement over a good inflation report. Deciphering the complex global and US economic scenario, here are the four key factors to consider for the future of inflation:

  1. US economy: With a resilient labour market and a slowdown in consumer spending, companies may retain workers longer due to uncertainties around politics, supply chains, and markets. With major supply chain disruptions happening every 18 months, it pays to train and keep skilled workers, despite wage inflation.

  2. Global economy: The global growth is sluggish, yet a synchronous global recession is unlikely due to rising real wages and tight labour markets. However, Middle Eastern oil supplies disruption could lead to soaring commodity prices.

  3. Climate transition: Cancellations of some Inflation Reduction Act related projects have reduced potential inflation pressure. The possibility of this pressure is further decreased if Donald Trump assumes office in 2025 and dismantles the IRA, as discussed in Monday’s column.

  4. Technology: With artificial intelligence disrupting white-collar work faster than expected, wage pressures are kept in check, thereby working as a disinflationary force.

Powell may succeed in keeping inflation under control, but the party will likely be subdued compared to historic inflation trends.

Recommended Reading

  • Check out Guido Alfani’s new book As Gods Among Men: A History of the Rich in the West. His New York Times opinion piece offers a sneak peek into the book.

  • Elmira Bayrasli’s Substack offers a fresh perspective on foreign policy, viewed through the lens of female actors. Her take on Kissinger is particularly noteworthy.

Edward Luce Responds

Considering current knowledge, Edward Luce does not foresee a surge in inflation in the coming months. However, he stresses the importance of factoring in the possibility of regular shocks due to the unstable global scenario. Rising political risks, the Ukraine war, and the potential fallout of the Taiwan presidential election in 2024 are factors that could impact global economic stability.

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