Ann Wagner Grills Federal Reserve Chair Jerome Powell On 'Shrinkflation'

3 months ago

During a House Financial Services Committee hearing prior to the Congressional recess, Rep. Ann Wagner (R-MO) spoke about 'shrinkflation'.

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Transcript

00:00Next, the gentlewoman from the great state of Missouri,

00:05Congressman Wagner, is now recognized for five minutes.

00:08I thank you, Mr. Chairman,

00:10and in keeping with baseball analogies here,

00:13I think I'm batting cleanup.

00:15Chairman Powell, welcome this afternoon to you.

00:18Chair Powell, in your testimony, you stated that, and I quote,

00:22longer term inflation expectations appear

00:25to remain well anchored.

00:29Could you please expand on that for us?

00:32Sure. So, in our thinking, and the thinking of economists

00:36and central bankers, what the public expects

00:38about inflation is really important,

00:40because if you expect there to be low inflation,

00:43then it probably will be low, because you're going

00:45to make sure that's true in your daily decisions.

00:48So, we measure them, you know, we survey individuals

00:51and businesses and market participants.

00:54And then we look at market-based,

00:56you can also derive market estimates

01:00of what inflation will be through various instruments

01:03of the markets, and all of those suggest that people expect

01:07inflation to be right around 2% over the longer term.

01:10And that's been very stable right through this episode.

01:13When you say longer term, sir,

01:14how many years would you be estimating?

01:18One year, three year, five year, is there any?

01:20So, we look at short and medium term inflation

01:24expectations, too, and they tend to be more volatile,

01:26because, you know, when inflation's high,

01:28people think that it'll last a few years.

01:30But one standard thing is to look at five year,

01:33five year, which is between year five and year 10.

01:36That's a standard way to look, or longer term than that.

01:40If you ask, you just ask people in surveys

01:42over the longer term, you maybe don't specify,

01:44but they all give you the same answer, which is people kind

01:47of have faith that inflation will go back

01:49down to its 2% level.

01:52There has been some reporting lately on shrinkflation.

01:57And for our viewers, I'll say this is when you pay the same

02:00price for something as yesterday, but get less of it

02:04than before, kind of like my bag of potato chips.

02:09Some have sought to direct attention away from the pain

02:13of runaway inflation that we've experienced and instead blame

02:17producers who themselves face rising cost pressures.

02:22Yet, I haven't seen any mention of shrinkflation

02:26as an inflation cause in any recent monetary policy reports.

02:31Moreover, a Bureau of Labor Statistics article last year

02:36looked at shrinkflation and concluded that, and I quote

02:39again, it has a minuscule impact on overall inflation.

02:43Chair Powell, from the Fed's perspective

02:46and analysis, has shrinkflation been a significant casual

02:51or amplifying factor in the runaway inflation

02:54of the past several years that has imposed maybe greater pain

02:58on American workers and households?

03:00I'd have to say no.

03:03I mean, I would say it this way.

03:04You know, packaging in the U.S. on food products and that kind

03:09of thing, you know, it's going to disclose the contents

03:12of the thing and the price will be what it is

03:14and consumers can make their choice to buy it or not.

03:16But we don't think that's a major driver of inflation, no.

03:21I think from a producer standpoint, it probably is.

03:24If the cost of the item is exponentially higher.

03:31It may reflect costs on the part of the producer.

03:34It probably does.

03:35But that doesn't mean it's a cause of inflation as such.

03:38OK, thank you.

03:39So, switching topics, the Federal Reserve has produced

03:43volumes of research

03:44over the last decade highlighting the negative

03:47consequences of the debit interchange fee cap.

03:51Some of the economists who produced

03:54that research have even worked on this proposed rule, the REG-II.

03:59Chair Powell, was the previous Federal Reserve research

04:03demonstrating Regulation II's detrimental impacts

04:08to low-cost checking accounts flawed

04:11or did it have incorrect conclusions?

04:15And if not, then why would the Fed propose this rulemaking

04:20when all of their research demonstrated detrimental

04:25impacts?

04:26Please.

04:28I am not entirely sure what research you're referring to.

04:31I'll be happy to follow up with you on that.

04:34Yeah, I hope you are because I know we're having this

04:36discussion about the interchange fee caps

04:39and REG-II.

04:42And I'm concerned about going forward on that when much

04:45of the research that we have seen from the Fed

04:50that has been pretty steady over the last number

04:53of years says it has quite detrimental impacts.

04:56So, please, to low-cost checking accounts.

04:59So, if you don't mind, I would love to get some answers on that.

05:02And also, why hasn't the Fed taken into action the higher

05:06fraud costs that debit card issuers will incur as a result

05:11of the new dual routing mandate

05:13for card not present transactions?

05:17I'm over my time.

05:18If you could also answer in writing,

05:21I would be ever so grateful.

05:22I yield back, sir.

05:24Bailey yields back.

05:25And I would like...

Ann Wagner Grills Federal Reserve Chair Jerome Powell On 'Shrinkflation'

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