Who Needs an Economics Ph.D. as Powell Unravels Inflation Riddle
(Bloomberg) -- Not everything there is to know about the economy can be discerned with statistics. And Jerome Powell, the first non-economist Federal Reserve chairman in three decades, sounds like he understands that.
In a question-and-answer session Friday following his first public speech in his new job, Powell said “it almost has to be true” that the proliferation of online shopping platforms such as Amazon, and the supply-chain effects of trade globalization, are holding down inflation, even if it’s all but impossible to measure the phenomenon.
“It makes all the intuitive sense in the world that the ability to price-shop like that would give price-setters a bit of a pause in raising prices, and it may very well be part of the psychology of our time,” Powell said. “It’s very hard to prove it to the economists -- you have to be able to conduct some kind of natural experiment, or to look at a place which didn’t have the web and then did, and you can see how that is.”
Staff economists at the Fed Board of Governors did try, according to the minutes of the January FOMC meeting, but had no success detecting a relationship. The Fed has had a hard time bringing inflation up to its 2 percent target in recent years.
“We know now that pretty much anything can be made -- anything physical can be made -- in a very cheap labor location someplace around the world, “ Powell said. “That has to somehow overhang price setting in advanced economies and here in the United States. Again, it’s very hard to find it though -- hard to prove it up -- but intuitively, it feels like it’s right.”
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