You can't be loved by everyone

Today, US inflation data was announced showing price increases of 2.4% year-on-year, slightly above market expectations of 2.3%. At the same time, it marks a significant decline from the June 2022 peak of 9.1%.

Like Swedish central bank governor Erik Thedeén, Federal Reserve chief Jerome Powell is also questioned. One of his critics is Paul Donovan, chief economist at UBS Global Wealth Management. Mr. Donovan criticizes Jerome Powell in an interview with EFN Ekonomikanalen which is a Swedish media company.

In the interview with EFN, Donovan points out that US CPI statistics contain many disturbances and deviations and Powell places undue importance on the CPI. In addition to his own criticism of Powell, Donovan also claims that several other members of the central bank's executive board disagree with Powell. In support of this claim, Donovan points to yesterday's Fed minutes which show that there is an unusually large public opposition to Jerome Powell.

The internal opposition to Powell depends, among other things, on how inflation is to be measured. Many economists at the Fed prefer the PCE deflator instead of the CPI. Personal consumption expenditures (PCE), also known as consumer spending, is a measure of the spending on goods and services by people of the United States.

The CPI includes only out-of-pocket spending made directly by consumers, while the PCE accounts for expenditures made on consumers' behalf. As a result, health insurance expenses made on behalf of employees by their employers or by Medicare and Medicaid are included in the PCE basket but not the CPI. Despite all the criticism, Donovan says quote "no matter how you measure inflation, it's going in the right direction" unquote.

Donovan continues his criticism of Powell quote “I'm not a big fan of Jerome Powell. I don't think he does a good job." unqoute. Donovan is also not happy with the central bank governor repeating his mantra that the Fed is guided by incoming macroeconomic signals. This means that every single macroeconomic data affects the Fed, even though such statistics are irregular and fluctuating in nature. US labor market statistics, which came in surprisingly strong on Friday, are a clear example of the fickle nature of data.

Paul Donovan pursues his criticism quote "The recent 50 point decline was probably a mistake", unquote. Donovan predicts the Fed will make 25-point rate cuts at upcoming meetings.