Lumber’s twists and turns resulting from the pandemic are Federal Reserve Chair Jerome H. Powell’s guide to the future of the U.S. economy. Last week, Powell acknowledged increasing inflation, saying new rate estimates exceed forecasts from three months prior. The Washington Post notes the economy can go one of two ways: Toward a remarkable period of strength and rising incomes or previously unseen inflation for everyday goods and services. Could the extreme uptick in lumber prices and the recent drops be indicative of the economy’s future? Powell believes so.
The abrupt turnabout offers lessons that are likely to guide policymakers as they run the economy at full throttle, accepting what they regard as a temporary bout of inflation in hopes of generating more than 10 million new jobs. Lumber’s wild gyrations show that today’s hiring troubles and shipping delays reflect short-term reopening kinks, not a lasting shift that will push prices higher and higher.
“Our expectation is that these high-inflation readings that we are seeing now will start to abate. And it’ll be like the lumber experience,” Powell told reporters on Wednesday. “Prices that have moved up really quickly because of the shortages and bottlenecks and the like, they should stop going up. And at some point, they, in some cases, should actually go down. And we did see that in the case of lumber.”
Indeed, lumber’s recent cooling appeared to vindicate Powell’s easy-money policies even as the government reported the sharpest 12-month rise in wholesale commodities prices since records began in 1974.
Former treasury secretary Lawrence H. Summers has repeatedly warned that by keeping interest rates near zero and by buying $120 billion in bonds each month, the Fed is risking a repeat of the inflationary spiral that began in the late 1960s.