I love Amazon’s proposed purchase of Whole Foods. But let’s not kid ourselves. Amazon would not be where it’s at today without the help of an ultra loose Federal Reserve. Where else is all that Goldman Sachs and indexing money going to go? Into cash? Please, in a “what have you done for me lately” world, the fast money needs a place to go. Amazon’s confidence–thanks to its bloated stock price–is like playing the Super Bowl with a 50 point lead before leaving the locker room for kickoff.
Now the Fed is trying to figure out what to do in a post-Bezos Law world. If you’re not familiar with my Bezos Law, it says “If Jeff Bezos enters an industry, prices will be lower.” Bloomberg’s Matthew Boesler reports that Chicago Fed President Charles Evans is trying to figure out how that could affect monetary policy.
When online retail giant Amazon.com Inc. announced last Friday that it would purchase Whole Foods Market Inc., a plunge in retail and grocery stocks reinforced the disinflationary tone set by three straight months of disappointing data on consumer prices. It’s an example of the technological forces that are increasing competition and further limiting companies’ ability to pass on higher wage costs to customers.
“That normally indicates that somebody thinks that they are not going to be earning as much as they were,” Federal Reserve Bank of Chicago President Charles Evans said of the market reaction to the deal while speaking with reporters Monday evening after a speech in New York.
“For me, it just seems like technology keeps moving, it’s disruptive, and it’s showing up in places where — probably nobody thought too much three years ago about Amazon merging with Whole Foods,” he said.
Evans, a voter on the Federal Open Market Committee this year who supported its decision to raise interest rates last week, says he is less confident than most of his colleagues that inflation will soon rise to their 2 percent target.
A big reason for his ambivalence: Deflationary competitive pressures could have become more important for the overall trend in prices than the so-called Phillips Curve relationship, which links inflation to the state of the labor market. That model, coined almost 60 years ago, is the basis for the Fed’s outlook for continued gradual rate increases.
Read more here.