Jerome Powell Responds | The Coming Market Crash.

everyone this is jerome powell for an

emergency press conference

i have to come clean

i f'ed up

inflation is not transitory

yet

for once in my life something is larger

and longer lasting than expected

and look when the pandemic struck we

were all scared banks were tightening up

lending getting ready to freeze credit

lines and stop new lending businesses

were laying off employees and cutting ad

spending and consumers started cutting

spending back as well

the economy looked like it had just hit

the e-brake

so we had to put some grease on the

e-brake to keep it moving

uh we can't afford a recession because

that hurts too many people

we don't want to hurt people so the

easiest option is just to print more

money and that's exactly what we did

we printed trillions of dollars

potentially over 25 percent of the money

in circulation in america

and now there's a fear we're going to

run up against rampant inflation

and i get it i've got

bullard hawker boston

and mestre up my ass every time we have

a meeting about tapering faster and

raising rates sooner i need to get them

off my back i'm not as hawkish as they

are

so this week we're likely going to

announce the beginning of our taper

we expect it to start with a 15 billion

dollar taper reducing our monthly bond

purchases from 120 billion dollars per

month to 105 billion dollars per month

this is expected to reduce some of the

money printing that's happening because

we're going to be spinning the money

printer a little bit slower it's going

to be moving about 12.5 percent slower

but we're still going to be printing

about 105 billion dollars per month so

don't worry we're still going to be

printing like crazy

now there have been some accusations

that what i'm doing is going to lead to

hyperinflation

well let's look at the facts

first headline inflation is measured in

year-over-year terms and in 2020 we

experienced a massive reduction in

spending we saw prices fall and between

march and july prices were depressed

very depressed so it makes sense that in

march through july 2021 we saw high

year-over-year figures we also regularly

stated that inflation would also occur

as the economy reopens that there would

be a burst of spending as individuals

reintegrate into the economy after being

trapped at home listening to youtubers

for months

this has led to substantial shortages

for products that individuals and

companies are looking for or seeking to

buy with their newfound wealth thanks to

asset valuations at all-time highs

we're seeing shortages in chips autos

shipping and delivery constraints labor

constraints and a market jump in

material and input costs

but don't worry

these are transitory eventually costs

and price increases

both uh and all of these actually are

expected to be results of really just

going through the pandemic and while

transitory is lasting longer we do

expect this transitory to begin

its end

in 2022 and now there are three reasons

we think that inflation will begin to

inflict downwards substantially in 2022

first since we measure headline

inflation on a year-over-year basis we

do expect to see some negative inflation

readings by the summer of 2022 and 2023

as we'll be comparing the inflated

prices from 2021

to potentially lower prices in 2022 and

23. we don't expect to see most prices

continue to go up year after year after

year

now we likely won't see headline

deflation we likely won't see deflation

in all categories especially as rents

and wages are likely to continue upward

and their movement is likely to continue

their pace for the next two to five

years

we again do not expect rents and wages

to relax their growth over the medium

term however product costs measured by

the consumer price index are likely to

plummet in many different categories

here's why

once supply chains catch up we're likely

to see an oversupply of chips

used cars

products

and things that folks have been

demanding during this pandemic as we hit

an oversupply of manufacturers stocking

up on chips or products and input

products we expect to see the massive

demand that we see now on commodity

prices will substantially wane as

manufacturers relax their ordering

manufacturers right now are double and

triple ordering to make sure they have

enough just to meet the demand they have

manufacturers are soon likely to realize

that they have stockpiles of not just

commodities and input products like

chips or aluminum or steel or lumber

but also massive stockpiles of finished

products as well

as a result

not only are manufacturers likely to

substantially reduce their demand for

commodities reducing commodity prices

but we expect prices of products

will also fall

as manufacturers wholesalers and

retailers encourage more spending with

lower prices to finally clear the now

overstocked shelves they have

this is why we expect that prices will

decrease substantially for many products

and commodities in 2022

this will also be an opportunity for

companies to beat

record revenues from 2021

which were thought to potentially be

impossible to be beaten

and that is as companies reduce prices

we expect demand to increase even more

now we might think that this would lead

to more inflation but don't worry we're

going to invest our stocks appropriately

before any of the movements happen in

the market so that way we can print

attendees while also printing money but

for now we've got to consider the fact

shipping backlogs are already beginning

to ease

in six months we expect these to be

almost entirely cleared

when shipping backlogs are almost

entirely cleared wholesalers retailers

manufacturers will no longer have to

double or triple order to stockpile they

will already have a stockpile and even

if they didn't have a stockpile they

would not have to pre-order as much once

we have shipping delays cleared

all of this stockpiling and a reduction

of shipping delays are expected to

reduce commodity prices substantially

again supply for lumber steel silica

aluminum are all expected to be adequate

in 2022

we then expect finished product costs to

plummet

as again companies lower prices that

means consumers will finally be able to

select products based on price and

quality again and not just on what's

available see today consumers have so

little choice they're paying higher

prices for speed rather than having the

luxury of choice

this is leading to the inflationary

increase that we're seeing

this is exacerbated by the wealth effect

that those with retirement accounts

stocks and real estate are feeling

richer as asset valuations are at

all-time highs

this is also why we've seen many

two-income households become one-income

households and more individuals retiring

earlier

these also being factories or factors

rather and keeping the labor market

extremely tight

all this means is that at some point

during 2022 we expect to see a

substantial inflection to the downside

in many categories of inflation with the

exception of rents and wages

we hope that this inflection point

occurs before the summer of 2022

but i always thought that transitory

would come by the end of 2021

and i was wrong

we are likely going to have to wait

until the middle of 2022 or potentially

through the end of 2022

this means that we will have transitory

inflation eventually

but if we do get to this inflection

point in the summer of 2022 i will

personally be very happy that way i can

get the other board members off my ass

and we can finish the taper but delay

raising rates

otherwise the others will want me to

raise rates starting in june the moment

we expect to complete our taper

now i'd like to respond to fears of

hyperinflation shout out jack dorsey

first household savings rates are sky

high and so are household investing

rates

this is substantially lowering the

velocity of money which basically means

we're able to print trillions of dollars

literally without creating substantial

inflation

imagine that we can print 25 of the

money supply and if money moves 25

slower we can print 25 of the money

supply without having any inflation and

that is what we expect in fact that's

literally what we're seeing

now if the velocity of money went back

up to previous levels

i'd probably lose my job because we'd be

screwed to hyperinflation

but

i will make it my career's mission to

make sure that jack dorsey is wrong

and so far he's wrong

he's very wrong

because take a look at this

this right here folks is the velocity of

money chart as you can see by where my

mouse is the velocity of money has

plummeted from 1.37 prior to the

pandemic to 1.1

this is a substantial reduction in fact

if we measure it from q4 of 2019 at 1.4

1.423 and we divide that by where we sit

we have seen a reduction of about

22.7 percent in the velocity of money

we printed about 25 percent of the money

so we have a teeny little bit of extra

inflation and we expect that to remain

manifested with increased wages

and increased rents

but we do expect commodity and consumer

prices to fall substantially in 2022 and

2023 we will not stay at five percent

forever unless of course this chart goes

up in which case i will lose my job

but anyway

it is possible that we will have to

raise rates at least once in 2022 but

ironically the stock market appears to

be cheering the potential for rate

increases which is quite unexpected

especially after what i went through in

2018 when donny t almost fired me for

raising rates

that's because there are still so many

inflationary fears in the market and

markets see rising rates or raise me

raising rates as a good sign that

inflation will be prevented by the act

of raising rates and i promise you i

will make sure that inflation is

prevented but for now it is going to be

transitory for longer and this is why we

now declare that inflation is transitory

eventually

because as much as i like the money

printer to go bur i like stocks and real

estate to go burr more

after all we need to make sure that

everybody can participate in the rocket

ship that is the stock market and the

housing market and we need to make sure

that minorities and low income

participants in the market especially

amongst our women black and hispanic

community have an opportunity to

participate in the economic gains

available and so far they've been left

behind as they've been

disproportionately affected by low

vaccination rates joblessness and

pandemic era restrictions

so if you want to help contribute to

inflation being transitory eventually

make sure to get your fouchy algae

subscribe and stop worrying about

inflation because rents are going to go

up and wages are going to go up but

everything else is going to come down

eventually thank you for watching this

emergency press conference goodbye

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