Falling lumber prices show inflation will be temporary – and used car prices will soon follow suit, Fed’s Powell says

lowe's remodeling
A Lowe’s employee stocks lumber inside the home improvement store in New York.

Fed chair Jerome Powell said falling lumber prices illustrate that inflation will prove to be temporary in his press conference Wednesday.

The central bank head acknowledged that inflation data has come in above expectations over the last few months, but said that the data is consistent with the view that the prices that are driving higher inflation are from categories that are being directly affected by the recovery out of the pandemic, like lumber.

“The thought is that prices like that, that have moved up really quickly because of 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,” Powell said.

Lumber prices have fallen more than 43% since May’s record high of over $1,700 per thousand board feet, although they remain more than 139% higher over the last 12 months, making it one of the best-performing commodities in that time-frame.

Last week, lumber futures fell 18% in the biggest weekly decline for most-active futures in records going back to 1986, per Seeking Alpha.

The Fed chair said used car prices may soon follow Lumber’s trajectory. Used car prices accounted for more than a third of the total increase in core inflation from May’s reading. Powell said a “perfect storm of very strong demand and limited supply” has driven the prices up.

“It’s going up at just an amazing annual rate. But we do think that it makes sense that that would stop and that, in fact, it would reverse over time,” he added.

As for when the trend will reverse, Powell said the Fed is not sure.

“But over time it seems likely that these very specific things that are driving up inflation will be-will be temporary,” said Powell. However, he added that the bank is carefully monitoring the risk of inflationary pressures continue longer than expected.

“And if we see inflation expectations and inflation-or inflation moving up in a way that is really materially above what we-what we would see as consistent with our goals, and persistently so, we wouldn’t hesitate to use our tools to address that. That’s-price stability is half of our mandate, and we would certainly do that,” the Fed chair said.

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Billionaire investor Bill Ackman warned of inflation, discussed bitcoin, and explained why he’s staying in New York City in a recent interview. Here are his 12 best quotes.

Bill Ackman
  • Bill Ackman said inflation won’t be temporary and the economy is at risk of overheating with interest rates this low.
  • The hedge fund billionaire also said cryptocurrency is “fascinating” but he’s not comfortable investing in bitcoin.
  • Ackman also revealed his fund recently acquired a 6% stake in Domino’s.
  • See more stories on Insider’s business page.

Billionaire investor Bill Ackman warned inflation may not be temporary and said the Federal Reserve may have to raise interest rates in a Wednesday interview at the Wall Street Journal Future of Everything Festival. The Pershing Square Capital Management founder also revealed that his fund recently purchased a 6% stake in Domino’s Pizza, sending the shares up as high as 5.9% Wednesday.

Here are 12 of Ackman’s best quotes from the interview, lightly edited and condensed for clarity:

1. “We’ve admired it for years, and it was just never cheap enough. And then for about five minutes, it got cheap. I don’t know who sold or why, but we started buying around $330 a share, and then very quickly it moved up a lot,” on his decision to buy a 6% stake in Domino’s pizza during the pandemic.

2. “The surprise numbers that came out are not due to any weakness in the economy. The economy is crushing it. Businesses are booming. If you think about hospitality, you can’t get a reservation in New York anymore,” on the jobs report that badly missed estimates last week.

3. “There are plenty of jobs, people haven’t had to work partially because of the stimulus…When unemployment benefits step back and some of the stimulus wears off, there will be more of a supply of labor.” He added that raising wages is good for workers and the economy because workers will spend money.

4. “They’ve got a great product, a great value where they do have pricing power. And so they’re able to offset the incremental costs of paying higher wages with charging a little bit more for a burrito. You charge 50, 60, 70 cents more for burrito, you can pay your workers more, and it’s still very good value to consumers. The key in a world where there’s going to be inflation and there’s going to be wage inflation is to have a business that sells a product where there’s pricing power,” on Chipotle raising wages. (Ackman’s Pershing Square owns Chipotle stock.)

5.”I think it’s not temporary‚Ķ.Look at every commodity price right? Copper, lumber, energy even before the colonial pipeline issue. Look at housing prices, look at Bitcoin right? Everything is inflating. That’s driven by a once in a moment history. People are emerging from a pandemic with the endless spirit that comes from being locked up,” on inflation.

6. “I think they’re going to have to raise rates for sure. And I think they adjusted their policy just at the wrong time. Preemptive policy toward inflation I think is a better approach, particularly in a world where we have massive, massive economic stimulus,” on The Federal Reserve.

7. “I think with rates where they are, there’s a very good risk of the economy overheating.”

8.”I think crypto is a fascinating phenomenon. I think it’s a brilliant technology and I kick myself for not understanding it, it’s one of the best speculations ever… But it’s not a place where I would feel comfortable personally putting any meaningful amount of assets in. Therefore I wouldn’t invest our firm’s assets.”

9.”There’s no intrinsic value. Intrinsic value to me is driven by cash generation. You have to be able to build a discounted cash flow calculation,” on why he’s not comfortable investing in bitcoin.

10. “I would be concerned if a friend had a lot of their net worth invested in, in one or more cryptocurrencies, I’d want them to take some money and put it into something a little more durable.”

11. “New York is an extremely desirable place to live. It is a big tax burden and when high-income people do the math and they say, well, I could move to Florida and buy this amazing house and not the state taxes, it motivates some people, but…One of the benefits of being successful is you can choose where you live. So to run away from a location because the tax rate is higher, it seems kind of silly,” on the migration from New York to Miami and his decision to keep Pershing Square in Manhattan.

12. “I think it’s very, very important who the next mayor of New York is, and that we actually have a pro-business mayor. The mayor of Miami has done a great job recruiting technology executives. The next mayor of New York has to do the same thing.” He added that Raymond McGuire and Andrew Yang are both great candidates for mayor.

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