Record Inflation Is a Key Test for the Federal Reserve. How Powell Could Fail.


About the author: Larry Hatheway is the co-founder of Jackson Hole Economics and the former chief economist of UBS.

Another high U.S. inflation report has jolted investors. Annual consumer price inflation accelerated in October to a 6.2% rate, new data revealed last week. Stripping away more volatile food and energy prices, the “core” rate of inflation came in at 4.6%. Both measures are at 30-year highs.

Within the details, the numbers were equally distressing. Previous areas of low inflation, such as rents, have begun to tick higher. Prices of items where economists had anticipated a peaking of price pressures, such as for used cars, surged again. Measures of inflation that remove outliers (trimmed mean approaches) show adjusted inflation running at its fastest rate in decades.

Wages are also rising at nearly a 5% clip, keeping pace with “core” but not “headline” consumer price inflation. Accordingly, labor costs may soon boost inflation…

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