The Fed chairman said he and his advisers are now “discussing” bond purchases — a key part of the stimulus measures during the pandemic, and the bank hinted that it might raise interest rates in 2023.

But with Canadian prices Soared 3.6%, Currently following the tail of U.S. inflation Run at five percent After that economy opens up faster, obviously these efforts will allow you to pay back the money you lost.

Fewer cars, less gasoline, less houses

Even if prices continue to soar, Powell and Bank of Canada Governor Steve McCallum, who spoke in the Canadian Senate on Wednesday night, continue to insist that the inflation we are seeing is only a short-lived one.

They say that after the distortion of the pandemic passes and the economy is back on track, price increases will fall back to 2%.

In a speech to the Senate Banking Committee last night, McCallum reiterated his view that inflation is temporary and is largely caused by what the central bankers call the “base year effect” because now Compared with last year’s price, the price just dropped last year. After the epidemic hit.

“As these base year effects fade [the central bank] The continued oversupply in the economy is expected to drive down inflation,” McClum told all senators.

But this will not push up wages.

For consumers, the problem is that price inflation is cumulative. Unless your salary has increased by the same amount this year, your monthly salary will continue to buy you less. As data from Statistics Canada showed yesterday, it will buy you fewer cars, less gasoline, fewer clothes, and fewer houses.

Although inflation did drop by a percentage point April (-0.2%) with May (-0.4%) By 2020, it is far from enough to make up for this year’s sharp rise in prices. Especially after June, prices started to rise again. Rose 0.7%.

rise salary?

But workers may have a chance to catch up. Although Powell is talking about the US rather than the Canadian market, labor demand tends to cross borders like inflation.

Powell said that one of the reasons he is willing to allow inflation to continue to rise without curbing inflation is to specifically create job opportunities and help raise wages, so that the unemployed and low-wage workers most affected by the epidemic have a chance to catch up.

Powell told reporters at a press conference on Wednesday: “If you look at the predictions, we will soon enter a very strong labor market.” “We have every reason to believe that we will enter a labor market, the number of which is very high. Attractive, low unemployment, high participation, and wages in all fields are rising.”

Unlike Canada, one of the duties imposed by Congress on the U.S. Central Bank is to create jobs in the economy. Another responsibility similar to that of the Bank of Canada is to stabilize the inflation rate at around 2%, even though McCallum discussed the possibility of adopting the US “dual authorization” system with the senator last night.

Powell said that the bank learned important lessons from the last attempt to stimulate employment after the 2008 financial crisis and economic recession.

Wage and price spirals?

Then, as the U.S. unemployment rate fell to historical lows, people repeatedly worried that the economy had run out of labor, which would push up wages and inflation. On the contrary, the bank found that more and more people who seem to be not looking for a job were attracted to the labor market, thereby depressing wages. Powell hopes that allowing the stimulus measures to work will make this happen again.

“We don’t see anything disturbing because the wage level in the entire economy is very broad and at an unsustainable level,” Powell said, noting that there is no sign that traditional wage and price spirals have driven inflation in the past. He hinted that overall wage growth may come from people shifting jobs to other higher-paying jobs.

For the financial market, the biggest problem is not the prospect of wage increases, but Powell officially broke his silence on wage cuts. This is the idea that the Fed will stop using quantitative easing as a stimulus-the US and Canadian central banks’ bond purchases to increase liquidity in the economy.

Unlike Canada’s formal announcement of cuts in quantitative easing in April, Powell said that the Fed is still only talking about it. Nonetheless, the market fell due to the news, triggering a new “loose the temper“When the central bank really announces certain things.

Although Powell did not officially announce an interest rate hike, data released along with the Monetary Policy Report show that most of his advisers are now following the Bank of Canada’s pace, and interest rates are expected to start to rise in 2023 instead of 2024.

As McCallum told the Senate committee last night, the way the current economic crisis is happening—starting with a loud noise and ending with a sudden end—is difficult to decipher.

“Everything about this crisis is so unique,” McCallum said in a meeting with the senator.

Powell also expressed this feeling earlier in the day, saying that the extremely unusual economic recession and recovery caused by the pandemic has increased uncertainty, which is several notches above the normal level of caution in economic forecasts.

“I think we must be humble about our ability to understand data.”

Follow Don Pitis on Twitter @don_pittis