I did something yesterday that I’ve never done before.


No, not bungee jumping or parachuting,

I read the transcript of the FOMC meeting

Because I know what companies on the ground are saying about inflation

But I wanted to see if the Fed still thinks it’s “transitory?”

So what did “Chair Powell” say about inflation forecasts & forecasters?

“There is no great forecaster of the future—so dots (individual forecasts of committee members – including his own…) to be taken with a big, big grain of salt”

“Forecasters have a lot to be humble about. It’s a—it’s a highly uncertain business, and we’re very much attuned to the risks & watching the data carefully”

“this is an extraordinarily unusual time, and we really don’t have a template or, you know, any experience of a situation like this. And so I think we have to be humble about our ability to understand the data. It’s not a time to try to reach hard conclusions about the labor market, about inflation, about the path of policy. We need to see more data and we need to be a little bit patient. And I do think, though, that we’ll be seeing some things coming up in coming months that will inform our thinking”

Ok, so forecasters basically haven’t a clue and shouldn’t expect to participate in the wage increases taking place out there.

So, let’s ignore precise forecasts, what’s happening now?

“the problem now is that demand is very, very strong. Incomes are high. People have money on their—in the bank accounts. Demand for goods is extremely high and it hasn’t come down. We’re seeing the service sector reopening and so you’re seeing prices are moving back up off their lows there”

Wow, sounds inflationary, what could happen?

“we don’t in any way dismiss the chance that it can work out that this goes on longer than expected, and the risk would be that over time it does begin to affect inflation expectations”

so in summary,

“is there a risk that inflation will be higher than we think? Yes.”

Well, there you have it:

It’s here, there’s a risk of it being higher than thought

and few people and portfolios are prepared for it

…but the economist I follow thinks it’s coming down next year

Perhaps that’s where the “big, big grain of salt” comes in