Powell's Benign View on Inflation Is Getting Pushback at the Fed, and Elsewhere

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  • Fed Chairman Jerome Powell's conviction that the inflation whipping through the economy this year soon will subside is not universally shared.
  • No fewer than five Fed regional presidents have told CNBC it's time to pull back on the easy-money policies, citing various levels of confidence in the economy tempered by worries over inflation.
  • "All the extra costs that we get passed onto us, we have to pass down to the customers," JKC Trucking owner Mike Kucharski said.
American Peterbilt truck on trucking route Interstate 10 in Louisiana.
Tim Graham | Getty Images
American Peterbilt truck on trucking route Interstate 10 in Louisiana.

Federal Reserve Chairman Jerome Powell's conviction that the inflation winds whipping through the U.S. economy this year soon will subside is not universally shared.

In fact, a growing contingent within the Fed's virtual halls is raising concern that the supply chain disruptions, burgeoning demand and shortages of labor and supplies could push the current trend well into 2022 and beyond.

Patrick Harker, the president of the Philadelphia Fed, said as much Friday in a CNBC interview that aired just before Powell gave his pivotal Jackson Hole symposium speech.

The Fed not only has achieved the inflation part of its mandate by keeping the level at well above 2% for a period of time, but it also faces the challenge that those price pressures don't seem to be fading, Harker said.

"There's also some evidence that they may not be so transitory, and that's a risk I'm worried about," the central bank official said in an interview about two hours before Powell's speech.

Business contacts in Harker's region "are seeing clear price pressures," he added. "What I'm hearing is they're trying not to pass most of that along to the consumer and customers … That said, they are passing some of that along. That's inevitable. So far people have been understanding. That won't last forever. At some point, we need to get this under control."

Those remarks stood in stark contrast to Powell's speech.

The Fed chief devoted a long passage in the remarks to rebut the notion that inflation posed a longer-term structural problem to the economy. He attributed most of the current price rise to a surge in longer-lasting "durable" goods that in pre-pandemic times actually had a long-running negative inflation rate.

Moreover, he said there is evidence that one key area of inflation, used car prices, has stabilized and is likely to bring the overall rate much closer to the longer trend. Earlier Friday morning, the Commerce Department reported that the Fed's preferred inflation gauge, the personal consumption expenditures price index, had expanded by 3.6% from a year ago, the fastest pace in about 30 years.

"The spike in inflation is so far largely the product of a relatively narrow group of goods and services that have been directly affected by the pandemic and the reopening of the economy," Powell said. "We are also directly monitoring the prices of particular goods and services most affected by the pandemic and the reopening, and are beginning to see a moderation in some cases as shortages ease."

A view from the road

That's not what Mike Kucharski, the owner of Summit, Illinois-based JKC Trucking, is seeing in his daily business encounters.

Instead, he is witnessing escalating freight rates caused by lowered capacity, rising demand and sharply higher energy prices. Shortages of food ingredients — he cited gluten for bread as one example — along with other raw materials also are driving inflation.

The situation is compounded by long lag times for deliveries as jammed ports are aggravating the goods shortages. Labor also is in short supply, with workers reluctant to head back to work even as there are more than 10 million job openings, a record for the U.S.

"The catalyst for skyrocketing prices for food is fuel has gone up, our insurance has gone up, all the costs have gone up, including extra pay for labor," Kucharski said. "The stimulus checks are not helping because even as truckers have been working through the pandemic, we're delivering to warehouses where some of them are taking two, three days to unload because they don't have the capacity and the workforce."

Indeed, freight trucking costs that had been on the downswing from mid-2018 until the pandemic have soared at record levels since. The rate for a long-distance truckload jumped 28.5% from a year ago in May, easily the highest ever in data going back to December 2004, and was rising at a still-astronomical 20.5% pace in July, according to Labor Department data.

Those are the kinds of expenses that ultimately find their way to store shelves.

"All the extra costs that we get passed onto us, we have to pass down to the customers," Kucharski said. "Our margins are very small."

Lower earners are hurt the most

The impact being felt by businesses like JKC Trucking are on the minds of multiple Fed officials, who worry that rising costs are especially impacting low- and moderate-income households who have the least ability to absorb them.

Over the past two days, no fewer than five Fed regional presidents said it's time to start pulling back on the easy-money policies of the past year and a half, citing various levels of confidence in the economy tempered by worries over inflation.

"We want to make sure we're on this, because high inflation or anything close to runaway inflation is really going to hurt people at the bottom of the ladder," Atlanta Fed President Raphael Bostic told CNBC on Friday.

Fed Vice Chairman Richard Clarida was a notable exception, telling CNBC on Friday that he agrees with the "transitory" view of inflation, though he noted the higher pressures in place now.

"What I would say is my baseline view is it it is largely transitory," he said. "I do think that the risks to inflation are to the upside, and that's why I think my colleagues are going to be looking at the data closely."

For his part, Powell conceded that the Fed probably has hit its 2% inflation target not only in the near term but also over a longer trajectory. In a rare revelation of what goes on behind the Fed's closed doors, Powell said he and others at the July meeting of the Federal Open Market Committee agreed that it is time at least to start pulling back on its minimum $120 billion a month in bond purchases, though rate hikes will be a separate consideration saved for later.

Powell also acknowledged that inflation "is a cause for concern," but said the current levels "are likely to prove temporary."

But with the conditions creating the inflation not subsiding, Kucharski said the issues now are likely to persist at least into next year and maybe beyond.

"Everybody's increasing the costs just to keep afloat and keep the wheels rolling," he said. "But it's affecting the end user, the American people. We've passed our going rate on to the shelves."

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