Powell Cares More About Fed “Independence” than Inflation and the Economy

Wall Street cheered Fed Chair Jay Powell’s annual Jackson Hole speech on Friday with a stock market rally that erased the losses seen earlier in the week. Wall Street interpreted his speech as signaling that the Fed will shift to a more “dovish” stance and likely cut rates at their September 17 meeting.

Did that really happen? Did Powell really cave in to Trump’s incessant demands for more money printing?

Let’s see what this economic central planner actually said.

Powell Can Do No Wrong…Just Ask Him

Like all good bureaucrats, Jay Powell is all about taking credit when things go right and blaming others when things go wrong. He started his Jackson Hole speech by saying that the “the balance of risks appears to be shifting” between inflation, which had been the bigger Fed concern in recent years, and unemployment, which has become more of a concern after last month’s terrible employment report.

He first discussed the employment situation. He acknowledged that, due to the Fed’s aggressive rate hikes in recent years, the “unemployment rate had increased by almost a full percentage point, a development that historically has not occurred outside of recessions.”

Then he noted that “the July employment report released earlier this month showed that payroll job growth slowed to an average pace of only 35,000 per month over the past three months, down from 168,000 per month during 2024.” In addition, he said, “labor force growth has slowed considerably this year with the sharp falloff in immigration, and the labor force participation rate has edged down in recent months.”

He summarized the current economic slowdown as follows:

Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.

At the same time, GDP growth has slowed notably in the first half of this year to a pace of 1.2 percent, roughly half the 2.5 percent pace in 2024. The decline in growth has largely reflected a slowdown in consumer spending. As with the labor market, some of the slowing in GDP likely reflects slower growth of supply or potential output.

Then he discussed rising inflation, five years after the Fed’s 40 percent increase in the money supply in 2020. He noted that “core PCE prices rose 2.9 percent, above their level a year ago. Within core, prices of goods increased 1.1 percent over the past 12 months, a notable shift from the modest decline seen over the course of 2024.”

Then he discussed the impact of tariffs, saying, “the effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts.” He speculated that “a reasonable base case is that the effects will be relatively short lived—a one-time shift in the price level.” But he cautioned:

It is also possible, however, that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed. One possibility is that workers, who see their real incomes decline because of higher prices, demand and get higher wages from employers, setting off adverse wage-price dynamics. Given that the labor market is not particularly tight and faces increasing downside risks, that outcome does not seem likely.

Another possibility is that inflation expectations could move up, dragging actual inflation with them.

He then tried to talk tough for the bond market by saying, “Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem.”

He finally acknowledged the obvious: that the Fed has created a broken “stagflationary” economy saying, “in the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate.”

Then he told Trump and Wall Street what they waited all this time to hear: “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” In other words, creating new money out of thin air!

But he gave himself plenty of room to do whatever he wants by saying, “Monetary policy is not on a preset course. FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach.”

Then he went on a rambling and confused discussion about the Fed’s “monetary policy framework,” which are their ill-defined triggers to justify more money creation.

Instead of taking responsibility for causing high price inflation, he blamed it on the ending of covid lockdowns, saying “the post-pandemic reopening brought the highest inflation in 40 years to economies around the world.” How would reopening businesses and the economy magically cause price inflation? No explanation.

He then acknowledged that higher inflation is likely here to stay, due to no fault of the Fed, of course. This enables him to justify rate cuts despite inflation being above 2 percent. As he put it,

With inflation above target, our policy rate is restrictive—modestly so, in my view. We cannot say for certain where rates will settle out over the longer run, but their neutral level may now be higher than during the 2010s, reflecting changes in productivity, demographics, fiscal policy, and other factors that affect the balance between saving and investment.

While their new policy is very vague and “data-dependent,” at least he reiterated that they still want to target their arbitrary 2 percent inflation rate in the “longer-run,” saying, “We also continue to view a longer-run inflation rate of 2 percent as most consistent with our dual-mandate goals. We believe that our commitment to this target is a key factor helping keep longer-term inflation expectations well anchored.”

What Does All of That Mean?

Here were Powell’s goals in giving this speech:

Blame inflation on anything and anyone else but the Fed;Pat himself on the back for being a genius central planner;Throw Trump and Wall Street a bone that he’s open to cutting rates;Acknowledge that the Fed’s rate hikes may cause a recession after all and the latest job report may be signaling that;Justify the Fed’s precious “independence” to raise or lower rates whenever they want based on how they interpret the latest “data”

What Are Our Takeaways?

Here are our takeaways:

The Fed has no idea what it is doing or what to expect going forward, just like all economic central planners all over the world;Powell lacks the courage to stand up to Trump and not create more money out of thin air, even though they have failed for 52 months to hit their 2 percent target and inflation is getting worse;Jay probably knows that more massive negative jobs revisions are coming on the September 6 jobs report, enabling him to cut rates on September 17, unless inflation is surprisingly bad

Thus, because of Jay’s lack of backbone in the face of Trump’s tweets, we will likely get even more money creation despite all of these at all-time highs:

StocksHousingBitcoinGoldMoney SupplyNational DebtConsumer Price Index

Typical bureaucratic economic central planning at work.

Economic Freedom Is the Answer

Jay Powell is not a genius. Indeed, he has been one of the worst economic central planners in the Fed’s history. That is saying a lot, since the Fed caused the Great Depression, the inflationary 1970s, and the Great Recession. Not only has Powell and the Fed caused the highest inflation in over four decades, but they may also end up causing the biggest recession since the last one they caused in 2008-2009.

Instead of hoping that Powell and his cronies will finally get things right at some point, we should try freedom for a change; freedom in money, banking, and interest rates. That means an economy with freely-chosen money, such as gold and silver, and no central economic planners like Jay Powell and his Fed cronies making one mistake after another.