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Bernanke Says Recent "Visible" Inflation "Temporary," and "Relatively Modest"
March 1, 2011 10:30 AM
Fed Chairman Ben Bernanke just kicked off two days of testimony on monetary policy. Here's what you need to know.
First, Bernanke just began reading his prepared testimony, which can be found here. The Federal Reserve releases important speeches and testimony on its Web site concurrent with the beginning of the speeches and testimony so in the future you can always head over to the FederalReserve.Gov Web site and under News & Events and Testimony and Speeches find whatever is being said without having to listen to the whole thing.
After the speech or testimony, there is typically a Q&A. The Q&A period is where the posturing by politicians and dodging by monetary authorities takes place.
So, here's what you need to know about this "highly visible," if "temporary" and "relatively modest" inflation pass through:
First, Bernanke leads off by acknowledging that although we've had seven (7) consecutive quarters of economic growth, he realizes "job growth remains relatively weak and the unemployment rate is still high."
But that doesn't mean he can't take credit for things! "In its early stages, the economic recovery was largely attributable to the stabilization of the financial system, the effects of expansionary monetary and fiscal policies, and a strong boost to production from businesses rebuilding their depleted inventories."
And, look, all this stuff we're doing? It's going to make things even better this year: "The combination of rising household and business confidence, accommodative monetary policy, and improving credit conditions seems likely to lead to a somewhat more rapid pace of economic recovery in 2011 than we saw last year."
There's some bad news, however. Unemployment? Well, it's going to take several years for that to budge. "[I]t could be several years before the unemployment rate has returned to a more normal level. Indeed, FOMC participants generally see the unemployment rate still in the range of 7-1/2 to 8 percent at the end of 2012."
Oh, yeah. I should mention that housing remains weak. Exceptionally weak. "[T] the housing sector remains exceptionally weak."
But look, inflation has declined if I use the qualifying phrase "on balance," which of course does not mean anything but does allow me to say inflation has declined because I qualified it by saying "on balance.": "Inflation has declined, on balance, since the onset of the financial crisis."
See, because what I mean by "on balance" is simply this: "Although overall inflation is low, since summer we have seen significant increases in some highly visible prices, including those of gasoline and other commodities." Sorry about that.
I know what you're going to say, especially you Ron Paul, thorn in my paw, bane of my existence. You're going to say that accomodative monetary policy and QEx (because we will probably have more than QE2, 3 and 4), have flooded the global economy with dollars, pushed up commodities prices, thus causing this high visible, if select, inflation pass-through to consumers even as this accomodative monetary policy has not improved concurrent asset price deflation or the overall contraction in the supply of credit as reflected in dampened aggregate appetites for risk. Pshaw! "the increases in commodity prices in recent months have largely reflected rising global demand for raw materials, particularly in some fast-growing emerging market economies, coupled with constraints on global supply in some cases. Commodity prices have risen significantly in terms of all major currencies, suggesting that changes in the foreign exchange value of the dollar are unlikely to have been an important driver of the increases seen in recent months."
Also, and look, I realize can only say this because the general public doesn't understand what in the hell it means, so here goes... also: "[T]he cost pressures from higher commodity prices are also being offset by the stability in unit labor costs."
[Editor's note: Hahahahahaha. Do you know what that really means? I will tell you. It means that because you aren't making any money because your wages are stagnant, or in some cases even going down, so your employers don't have to worry about any inflation cost pressures! Wait, why doesn't my employer have to worry about it? Because your employer is not paying you very much thanks to high unemployment, meaning if you say, "Hey, man, I need a raise." your employer will just say, "I understand. You're fired. I have three unemployed people waiting outside the door ready to take your place and who are more desperate than you because they don't have jobs, so I can pay them less. Good luck and good bye." Wait, but isn't unemployment bad? It sure is. Bernanke said so! But it's also kinda nice, for now, because high unemployment keeps your wages low. Haha. Did I just say "kinda nice"? Wow. Sorry! But look, that's what I mean by "stability in unit labor costs." Hahaha. Get it? So, as long as there's stability in labor cost units, the only people who have to worry about inflation are those pesky labor cost units! Meaning, unfortunately, you, but you don't know that because when I testify IN PUBLIC that "cost pressures from higher commodity prices are also being offset by the stability in unit labor costs" you have no idea what in the hell that means. So, you know, sorry about that, Mr. and Mrs. labor cost unit."
No positions in stocks mentioned.
BECAUSE IT ALWAYS COMES DOWN TO RON PAUL
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