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The Fed: Fed chief Powell’s speech was ‘ludicrous,’ says Dartmouth economist and leading dove

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Federal Reserve Chairman Jerome Powell’s speech in Jackson Hole was “ludicrous” because it is likely that inflation is on the way down, said David Blanchflower, an economics professor at Dartmouth College and a former external member of the Bank of England’s monetary-policy committee.

In an interview with MarketWatch, Blanchflower decried the “groupthink” on the Fed, saying it was worrisome that there are no more doves on the central bank’s interest-rate committee.

History shows that when inflation hits, people stop buying high-priced goods and prices pall.

Blanchflower noted that forecasters at the Bank of England see greater than 50% chance that inflation will be below 1% at the start of 2024.

“The shock goes away,” he said.

Powell said last Friday that the Fed need to continue raising rates and hold them high until inflation subsides. The Fed leader said this would likely cause “some pain” for households and businesses.

Read: Powell says Fed will keep at task of lowering inflation until the job is done

“Powell’s job is to insulate people from pain, not cause pain,” Blanchflower said.

“He’s going to create a horrible recession.”

Blanchflower pointed to new research that says a 1 percentage point rise in unemployment causes 10 to 13 times more pain than a 1 percentage point rise in inflation.

Blanchflower thinks the U.S. is already in a recession and that the labor market is not tight, despite the low 3.5% unemployment rate. He said the unemployment rate is no longer a useful indicator.

All-in-all, there is a plausible case to be made for cutting rates, he said.

“At the very least, you should be sitting and waiting,” Blanchflower said.

Stocks
DJIA,
-0.12%

SPX,
-0.13%

were trading lower Monday and the yield on the 10-year Treasury note
TMUBMUSD10Y,
3.106%

rose to 3.1%.

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