Janet Yellen's Final Exam

George Yacik - INO.com Contributor - Fed & Interest Rates


Although he professes to “really like her a lot,” President Trump appears to have made up his mind that that the next chair of the Federal Reserve won’t be the incumbent of the past four years, Janet Yellen.

On Tuesday, according to media reports, the president asked Republican senators for a show of hands on whether they favored current Fed governor Jerome H. Powell or John B. Taylor, the Stanford University economics professor and frequent Fed critic. Results of the informal vote weren’t disclosed. On the same day, the New York Times ran an article comparing the “finalists” for the Fed chair position, mentioning only Powell and Taylor, even though the White House has said Trump is considering three additional candidates, including Yellen.

So it now looks like it’s a two-man race between Powell and Taylor. Trump has promised to make an announcement any day, at least before his trip to Asia at the end of next week.
Regardless of who he chooses, it’s certainly an appropriate time to review Yellen’s tenure as Fed chair, either as a historical exercise or as an indicator of what we can expect for the next four years in the event she is reappointed. Let’s look at some of the main points. Continue reading "Janet Yellen's Final Exam"

Is Janet Coming Back?

George Yacik - INO.com Contributor - Fed & Interest Rates


A lot of names have been thrown around to be the next head of the Federal Reserve. But who is the most likely person President Trump will name?

The current occupant, Janet Yellen, has to be considered the front-runner, although that doesn’t necessarily mean she’ll be renominated. Indeed, I would put the odds of her being reappointed at less than 50-50 – a lot less.

She does have several things going for her. First and foremost, she’s a known quantity. The markets would certainly be happy if Yellen were reappointed, if for no other reason than that they’ll know what they’re getting. With the major stock indexes all at or near all-time highs, and the bull market already nine years old, the market doesn’t want anything untoward to upset the status quo.

But as we should know well by now, stability isn’t exactly Trump’s comfort zone. Two weeks ago, he had no problem telling investors in billions of Puerto Rican bonds that they could pound sand, which caused a major meltdown in the price of those bonds (administration officials subsequently walked back his remarks).

Would he risk something like that happening to the entire bond and stock markets by not reappointing Yellen? (Even if she doesn’t get reappointed as Fed chair, Yellen’s term as a member of the Fed’s Board of Governors doesn’t end until January 2024, although it’s expected that she’ll resign if she’s not renamed as chair).

Besides the stability factor, the main reason why the markets like Yellen, of course, is because, in the words of Mr. Trump himself on the campaign trail in May 2016, “She is a low-interest rate person, she’s always been a low-interest rate person, and let’s be honest, I’m a low-interest rate person.” He reiterated those feelings in July in an interview with the Wall Street Journal, in which he added, “I think she’s done a good job.” Continue reading "Is Janet Coming Back?"

Will The Fed Drop The Hammer On Wells Fargo?

George Yacik - INO.com Contributor - Fed & Interest Rates


A few weeks ago Federal Reserve Chair Janet Yellen made some short – but very direct – comments about one of the big banks under the Fed’s oversight.

“Let me say that I consider the behavior of Wells Fargo toward its customers to have been egregious and unacceptable,” she said at her press conference following the Fed’s September monetary policy meeting. “We take our supervision responsibilities of the company very seriously. And we are attempting to understand what the root causes of those problems are and to address them.”

Now, for a person one of whose job requirements is to always speak cryptically, vague and ambiguously in public – Fedspeak, in other words – to call out one of the largest banks in the country and call its behavior “egregious and unacceptable” is pretty startling. That’s why I believe a major fine – at least $1 billion – against the Wells Fargo & Company (NYSE:WFC) by the Fed is coming.

Not only would it be justified, but certainly not out of line given past Fed penalties against other banks that committed far less “egregious” misdeeds. The fact that all of Wells’s transgressions were highly publicized and committed against consumers – millions of them – makes it even more imperative that the Fed let Wells have it between the eyes.

Let’s look at some recent big fines imposed by the Fed against the banks it regulates: Continue reading "Will The Fed Drop The Hammer On Wells Fargo?"

CFPB Stays, But Cordray Goes

George Yacik - INO.com Contributor - Fed & Interest Rates


The worst-kept secret in Washington is that Consumer Financial Protection Bureau Director Richard Cordray may be running for governor of Ohio. Whether that satisfies his political ambitions or not is unclear, given that if he wins he would have to answer to someone other than himself – the state’s taxpayers – a position he doesn’t seem comfortable with.

In a country loaded with way too many arrogant politicians and government officials who think they are above the law and normal standards of decency, Cordray has set the bar pretty low. Few public officials have shown the level of contempt for legitimate questioning from Congress, the White House and the industries his agency oversees than Cordray has shown since he took over the CFPB, and it’s only gotten worse in the past few months as his tenure winds down.

More seriously, his obstinacy, haughtiness, and lack of candor are likely to cost the agency a lot of goodwill and support in Washington, and possibly among the public. He owes it to the agency he helped build and supposedly loves to step down immediately before he creates more damage.

Now comes word that Cordray’s agency may have botched the Wells Fargo scandal – big time. Not only has there been previous evidence that the CFPB was lackadaisical in investigating the bank’s sales practices, at least a year after the Los Angeles Times reported there were problems, but now a recently released internal memo shows that the agency’s lawyers felt there was a strong justification to hit the bank with a $10 billion penalty, instead of settling for a paltry $100 million last September.

What’s up with that? Continue reading "CFPB Stays, But Cordray Goes"

What's Behind the Fed's Inflation Obsession?

George Yacik - INO.com Contributor - Fed & Interest Rates


The battle lines are being drawn for the Federal Reserve’s monetary policy meeting this week. The prevailing market consensus right now is that no resolution of the debate – which mainly concerns inflation – will happen at the meeting, meaning there will be no change in interest rates, and may not be before the end of this year.

One side of the issue, which seems to be the prevailing view at the central bank, was recently promulgated by Fed governor Lael Brainard at a meeting of the Economic Club of New York. “My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” she said. “We have been falling short of our inflation objective not just in the past year, but over a longer period as well. What is troubling is five straight years in which inflation fell short of our target despite a sharp improvement in resource utilization.”

The other side, which appears to be the minority opinion, is represented by William Dudley, the president of the New York Fed, who isn’t overly concerned about the current level of inflation. “Even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate” to raise interest rates soon, he said recently. “I expect that we will continue to gradually remove monetary policy accommodation.” Continue reading "What's Behind the Fed's Inflation Obsession?"