Jerome Powell: Stop stirring the inflation pot 

Inflation will likely continue to decline from its present 7.1 percent annually toward the Federal Reserve Board’s target of 2 percent by this fall, with little or no additional intervention. Federal Reserve Chairman Jerome Powell should refrain from stirring the inflation pot and let the residual heat from previous tightenings bring inflation down softly.

The first indication of this continuing inflation decline would be a climbing stock market (a historically leading indicator), followed by anticipatory reductions in mortgage rates. 

On the other hand, lower job growth would be among the last signals of inflation and a cooling economy. That such a decline has already begun to take place confirms the inflation downtrend.

As a result, investors should get ready to invest in the stock market soon, home buyers should wait until mortgage rates start to decline by year’s end and consumers should begin enjoying some abating prices. 

The Fed has been effective in reducing inflation (which declined  from 9.1 percent in June  to 7.1 percent in December) thanks to seven discount rate hikes in 2022 — four of them aggressive .75 basis-point increases. Now inflation is headed decidedly downward.

Furthermore, according to my own research, inflation will decline by another 1.65 percent once the war in Ukraine ends without any action by the Federal Reserve Board.

Moreover, the stock market has stopped declining, and its major indices (the S&P 500, Dow 30 and Nasdaq) have inched upward in the past week, suggesting it may be getting ready to sprint.

Even lagging indicators of cooling inflation that obviate Fed intervention, such as reductions in job growth, have already begun to take place. For example, job growth has gone down every month.

All these suggest that inflation is getting under control, and that continued Fed panic over high prices would be counterproductive.

What if I am wrong? What if by fall inflation has not continued its decline toward the Fed’s target rate of 2 percent, mortgage rates have not decreased from their present levels and job growth has not declined further?

While these outcomes are possible, they are not likely. But even if this forecast does not materialize by fall, it will become a reality later, for it’s not a question of if but when.

Because the present downtrend in inflation is irreversible, all the Fed needs to do is watch patiently for past tightenings to express their full effects, some of which could take a long time to materialize. 

Will Powell refrain from stirring the inflation pot and let the economy cool down?

Given that Powell and the other members of the Federal Reserve Board seem determined to tighten interest rates even further, he is likely to continue stirring until the pot runs over and brings the economy to a sudden, scorching landing and, in the process, hurts millions of Americans.

Avraham Shama is the former dean of the College of Business at the University of Texas, The Pan-American. He is professor emeritus at the Anderson School of Management of the University of New Mexico. His book on stagflation was published by Praeger Publishing, and his new book, “Cyberwars: David Knight Goes to Moscow,” was recently published by 3rd Coast Books.