Jay Powell’s Rorschach Test

Here we go again. It’s the most important one-man show on Broadway. It opens, and then reopens six or seven times a year. And the star of the show, the Fed chairman, Jay Powell, plays himself.The great thing about these Powell performances are they’re like Rorschach tests. You can read anything into them you want.Wall Street spends untold sums hiring analysts who try to interpret Mr. Powell. Investors are undoubtedly baffled by all of this.After today’s performance the stock market went up 400 points or so, so investors are happy out there.Now, are they happy because the Fed leaned against the wind, and suggested no easier money? That Mr. Powell is going to hold the line with his 2 percent inflation target? Or, that the Fed is not going to start slashing rates in order to juice the economy to re-elect President Biden? Who knows?Others will say, the Fed economic projections still show three interest rate cuts this year, even though their projections are nearly always wrong.I think the best thing Mr. Powell said was keeping his 2 percent inflation target. They’re not there yet.Here’s some price-level indicators everybody should keep an eye on:– The gold price since October is up 20 percent.– A key commodity index since November, up 12 percent.– Brent crude oil at $86, is up 19 percent since mid-December.– Gasoline at the pump has climbed 12 percent back to $3.52.In the Treasury market, most interest rates have gone up since the last Fed meeting in January. The actual inflation reports in the last three months have shown higher, not lower inflation trends.So, Mr. Powell is right to stay cautious, and not embark on some wild monetary pump-priming, and interest rate cutting eruption.By the way, in a recent report, Secretary Summers has reconstructed the old CPI from the 1970s and the 1980s that included personal borrowing costs, such as mortgage, auto, and credit card loans.For some reason, these costs were removed from the Consumer Price Index at some point during the mid to late 1990s.One reason why Mr. Biden has a rock bottom economic approval rating, and consumer sentiment is so low, is because car loans are running around 10 percent, credit card loans upwards of 25 percent, and mortgage rates stubbornly above 7 percent.This is causing great consumer unhappiness, even though the experts removed these personal interest rate costs from the inflation indexes.Mr. Summers reconstructed the CPI and came up with an 18 percent inflation peak back in April 2022, and a 7 percent inflation rate as recently as November 2023.The official CPI was 3.2 percent over the year ending in February, even though since the beginning of Mr. Biden’s term the price level has gone up over 18 percent with groceries up 21 percent and energy up 30 percent.So with all this, Mr. Powell is right to keep his pedal off the accelerator. But remember folks, even on Broadway, there’s no such thing as a one act play.From Mr. Kudlow’s broadcast on Fox Business Network.

Jay Powell’s Rorschach Test

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