Original title: some statements made by Powell yesterday (October 22, 2021)-- there is nothing monetary policy can do about supply.

Source: Zhibao Wisburg

In short, Powell is still...

There are still high expectations for the job market (to grow as fast as last summer, with nearly 1 million new non-farm workers), which we'll see in early November.

The Taper arrow has to be fired.

The problem of inflation and supply bottlenecks began to soften step by step.Realized that there was nothing the Fed could do about it.。

Be aware that your new framework is exposed to the risks of the new environment (see question 3 for details).

The worst-case scenario for the Fed isSubsequent employment data remain weak while inflation risk remains highAs a result, the Fed is likely to break its defenses and deviate from the new framework it has just laid down. (please read the article on the framework risks we highlighted earlier)

At present, both the Federal Reserve and the Treasury Department (Yellen) are expected to reach the level of full employment next year.And this means that the economy has reached the threshold of raising interest rates.。

Question 1: chairman Powell, compared with the confidence you had a month ago, how confident are you that the inflation rate will return to 2% next year, and how much will the inflation rate fall?Due to the increase in supply和As a result of the decline in demand?

I can start with global activity, which continues to rebound with the support of improved vaccination levels and the reopening of the economy. Over the next year or so, as the pandemic weakens, the economy returns to more normal levels of activity. However, this is a very uneven recovery, partly because of vaccination and partly because of policy space. As Augustine (General Manager of BIS) pointed out, emerging markets lag far behind advanced economies, and the key factor in the world is still to get rid of the epidemic. The negative effects of the Delta epidemic, which forced some countries to resume restrictions, slowed the recovery and disrupted global supply chains, are now fading, but supply bottlenecks continue to affect production in some industries and push up prices, leading to higher inflation as the economy restarts.

Therefore, as the Delta epidemic fades, we expect the progress of economic recovery to accelerate.Although we can't rule out the possibility that there will be another peak of the epidemic this winter.。

There is nothing special about the situation in the United States. Demand is very strong this year and is expected to achieve 5 per cent economic growth. like elsewhere, the Delta epidemic briefly slowed economic progress in the third quarter of this year, making it impossible for people to resume public activities and return to work.GDP growth slowed sharply in the third quarter and will be lower than we thought.As the Delta epidemic fades, my personalIt is expected that job growth will return to close to the high level last summer.. At the same time, supply bottleneck supply chain problems hinder activities in some industries, such as the automobile industry, where strong demand for goods and supply bottlenecks mean that headline inflation is much higher than our target, although inflation in the service sector is not high.

Back to your question, is inflation temporary or not?Our view is that the factors just mentioned may be weakened.Because after the epidemic subsided,Consumption will shift from goods to servicesWhen people return to work, the problem of supply constraints will be solved.Of course, our monetary policy tools have little effect on supply restrictions, and it is obviously difficult to predict the evolution of supply constraints, and how long it will take for supply constraints to weaken. In fact, recently, the problem of supply constraints has not improved, it has become worse, our labor supply is also a problem, and now we have to face upward pressure on energy prices.Well, how do we deal with it? I think in the United States and other developed economies, these supply constraints and shortages, and the corresponding increase in inflation, may last longer than previously expected, possibly into next year, and so will the upward pressure on wages. but the most likely scenario is that as supply-side constraints eventually fade and employment picks up, inflation will fall back close to our 2% target.

Meanwhile,The residual risk is thatQualcomm IncInflation will cause price and wage setters to have unduly high expectations for future inflation.If we see a serious risk that inflation will continue to rise to higher levels, we will certainly use our tools to keep prices stable, taking into account our full employment goals, so we need to make sure that our policies respond to all possible outcomes. We will carefully observe whether the economic development is in line with expectations, and our policies will need to adapt (the environment).

We will launch Taper as planned, and if the economic development is roughly in line with expectations, Taper will be completed by the middle of next year.

Question 2: chairman Powell, you said last month that Taper might start at the meeting in early November at the earliest. Since then, the performance of economic data has been mixed, and the employment data for September is worse than expected. So do you think the threshold of Taper has actually been reached at the next meeting, or do you still need more time to assess the impact of the Delta epidemic on the economy?.

I think we are on the right track to launch Taper. If the economic development is roughly in line with expectations, Taper will be completed by the middle of next year.This means that tests that have made substantial further progress in achieving the goals of full employment and price stability have been met.

Question3: some people criticize the implementation of the Fed's policy, saying that the FOMC risks raising interest rates too late, and the Fed does not raise interest rates until it is convinced that the labor market has far exceeded full employment, so the FOMC may have to do more when it starts to tighten monetary policy, which may increase the likelihood of a recession. how do you respond to that?

A: this is a misunderstanding of our policy framework. If you look back at history, the policy framework deals with a situation in which the labor market is getting tighter and tighter but inflation is not responding. This was the case in the previous economic cycle, especially in the last cycle. But the situation is different now. We are 5 million less employed than we were in February 2020, so we are still far from full employment.

At the same time, inflation is no longer moderate and far above our target.The current situation does not apply to the patient methods we used in the past.At present, there is a conflict between the Fed's inflation and employment targets, which are usually tight when inflation is high. The current situation is that when inflation is high and there is room for employment, we have to consider the underemployment and the deviation of inflation, as well as the process of reaching our target level in the time period.

To return to your question, we still have an employment gap of 5 million compared with before the epidemic, and it should be 7 million less if we take into account the trend growth. But while there is a gap in employment, the job market has become very tight. The main reason is that many people are still hesitant about the epidemic, and that it takes time to find a new job.

It now meets the requirements of Taper, but it is still a long way from tightening policy by raising interest rates.

Question4: are you sure the Fed is not behind the curve now? (raising interest rates too slowly)

I think on the issue of economy and monetary policy,There is no absolute.. The supply problem is related to the epidemic, and we think the supply chain will recover slowly, but we don't know how long it will take to recover. There is a broad consensus among forecasters that strong demand on the other side leads to high inflation.The risk is clear, supply bottlenecks are longer than thought, and correspondingly high inflation is likely to continue into next year.Our job is to do risk management to deal with different potential situations. Now is the time for Taper, but it is not up to the standard of raising interest rates.

Question5: if inflation remains stubborn until the full employment target is reached, how will the Fed deal with it?

To balance the two goals, we need to ask two questions.How soon will the two achieve their respective policy goals? How far away is it from the target?The Fed has the ability to maintain our policy objectives. We need to be patient, let the Taper land and let the labor market recover naturally, and we expect the strong growth of the labor market to be in line with the level of last summer, when it was close to a million monthly job growth. If the employment gap is eliminated so quickly, the slack in the labour market will be quickly absorbed. With regard to inflation, we will also monitor and adapt to the policy.

Question 6: grandma Yellen said on Wednesday that the United States is expected to return to full employment next year. Do you agree? Is there any sign that you mentioned the wage and price spiral at the JH meeting?

A: my expectation is that as the epidemic recedes and supply constraints fade, we will see a rapid recovery in services and employment after the economy restarts, growing as it did last summer. Next year, the labor market is likely to meet the full employment goal of the job market.But then again, it is only possible, not entirely certain.

With regard to inflation, inflation has been low and inflation expectations have been stable over the past few decades. I don't see any evidence of the price and wage spiral at the moment. Wages for low-wage service workers are rising. It is difficult for companies to recruit people, and we are closely monitoring inflation.