Fed Chair Powell Demands More ‘Pain’ of Americans and Foreign Nations
Aug. 27, 2022 (EIRNS)—When the Kansas City Federal Reserve’s annual Jackson Hole Economic Policy Symposium (this year on “Reassessing Constraints on the Economy and Policy”) opened Friday, Aug. 26, first up at 8 a.m. was Fed Chair Jerome Powell to deliver “The Word” to the usual dozens of central bankers, policymakers, academics and economists who come to these rituals.
Said Mr. Powell, in summary: Having brought you nothing in the dozen years after the Crash except an exploding stock market; then having brought you a runaway inflation and disappearing real incomes; now the Fed will bring you “pain.” “Some pain,” to quote him exactly. Included in that pain is higher unemployment, he made clear.
His brief speech was laced with phrases such as: “reducing inflation is likely to require a sustained period of below-trend growth;” monetary policy “will be sufficiently restrictive;” and defeating inflation “will likely require maintaining a restrictive policy stance for some time”—i.e., interest rates will continue to rise sharply over the foreseeable future.
The financial world got the message. The U.S. stock market plummeted, and foreign currencies dropped sharply against the dollar, expecting U.S. interest rates to continue their upward trend, triggering deadly capital flight out of developing sector markets in a rush back into the dollar. “The Fed will not pivot even if the economy and markets take a hit,” Invezz reported summarily. By the end of Aug. 26, the Dow had fallen more than 1,000 points, with all U.S. stock markets falling by 3-4%.
Powell delivered a brass-knuckle warning that if his painful policy were resisted, the world would instead get a new round of Paul Volker’s “successful” 1980s shock therapy—i.e., interest rates of more than 20%. “The successful Volcker disinflation in the early 1980s followed multiple failed attempts to lower inflation over the previous 15 years,” Powell stated at the conclusion of his remarks.
A nervous Bank for International Settlements General Manager Agustín Carstens, however, worried lest the “pain” be too much and too fast, and crash the entire system in the process. The phenomenally portly Carstens chose an image from aviation in his speech to the Friday luncheon session: “We may be approaching what in aviation is called a ‘coffin corner,’ the delicate spot when an aircraft slows to below its stall speed and cannot generate enough lift to maintain its altitude. It takes skilled piloting to get the aircraft back to a safer, stable place”—not exactly a ringing endorsement of Powell’s bravado.