Yellen Joins The Party

When then-President-Elect Joe Biden nominated Janet Yellen to be his Treasury secretary last month, the markets rejoiced. The former Federal Reserve chair was a known quantity, and investors hate uncertainty – they knew what they were getting. Even better, they liked what they were getting—a monetary dove who favors low-interest rates and supports an interventionist government and Fed. While she wouldn't be on the Fed in her new role, she still holds the same views.

Moreover, since she is Jerome Powell's immediate predecessor, and they both worked together on the Fed for several years, it was pretty much a given that the two will work closely and harmoniously together for the good of the country, as the times demand.

But the markets were also relieved that Biden did not bow to the so-called progressives on the extreme left of his party and pick someone more to their liking, instead choosing someone with safe, relatively moderate views that both parties could support – as indeed they did, by an 84-15 Senate vote. In other words, Biden wanted – and the markets demanded – an adult in the room, and that's what they got with Yellen.

Or did they? Continue reading "Yellen Joins The Party"

The Conundrum Continues

Just how bad are things for the U.S. economy anyway? If you just finished reading the financial news headlines the past few days, you can't be blamed for being just a little confused.

From the government side, you would swear that the sky is falling. Not only is the COVID-19-fueled financial crisis ongoing, but it might also be getting even worse. Last week, we heard it from Federal Reserve Chair Jerome Powell and this week from his predecessor, Janet Yellen, President Biden's nominee for Treasury Secretary.

"The economy is far from our goals" of full employment and sustained 2% inflation, Powell said at a webcast sponsored by Princeton University. Therefore, he said, "Now is not the time to be talking about exit" from easy money policies. "When the time comes to raise interest rates, we will certainly do that," he said. "And that time, by the way, is no time soon."

Yellen painted an even bleaker picture. "Economists don't always agree, but I think there is a consensus now: Without further action, we risk a longer, more painful recession now—and long-term scarring of the economy later," she said in prepared remarks for her confirmation hearing before the Senate Finance Committee.

While not dismissing the concern that "further action" would add to the already humungous federal debt burden – now at $21.6 trillion and expected to grow even more under Biden – Yellen was more worried about the possible consequences of not spending enough. Continue reading "The Conundrum Continues"

Is More Stimulus A Slam Dunk?

If there were any doubts about whether more federal helicopter money would be falling from the sky, those doubts should have been erased by several major events that happened last week.

The latest event—which likely sealed the deal—was the December jobs report, which showed the economy losing 140,000 jobs, the first drop in payrolls since last April. If Congress needed another reminder of how many people are still suffering out there and that more help is needed, that should do it.

The second event was the Democrats prevailing in the special elections for Georgia's two Senate seats, giving the party an effective majority in that body to continue holding on the House. On paper, of course, both parties have 50 seats in the Senate. But let's not forget that Vice President Kamala Harris will hold the tie-breaking vote.

But her vote probably won't be needed in the current political environment. While the Democrat majority seems razor-thin, if existent at all, we can be fairly certain that votes in favor of more stimulus will be much greater than that and bipartisan, thanks to the riot on Capitol Hill on Thursday. In light of what happened, how many Republicans do you think will be brave enough to vote against the Democrats on just about anything, particularly more stimulus checks, which many of them already favor? Continue reading "Is More Stimulus A Slam Dunk?"

The Fed Warms To Climate Change

The politicization of the Federal Reserve continues apace. And no, President Trump isn’t trying to pull some grand last-minute gesture before he leaves office, like trying to fire Jerome Powell or something like that.

Last week, as expected, the Federal Reserve formally joined the Network of Central Banks and Supervisors for Greening the Financial System, the “lone holdout” among the world’s major central banks to join this “forum for central bankers and regulators to come together and discuss how their institutions can ensure their financial systems don’t worsen climate change risks, and how financial institutions might be able to lower those risks,” as the Wall Street Journal described it.

As innocuous as that may sound, it injects the Fed solidly in the middle of what has become increasingly political, namely which companies – and probably, individuals eventually– banks should or shouldn’t lend money or offer their services to.

As we know, several large international banks have been under increasing pressure from shareholder activists to stop making loans to companies in the “fossil fuels” business, namely oil and coal companies and pipeline operators, and the like. And the banks have dutifully buckled under, albeit with a long lead time as to when they will actually cease doing so. Now the Fed will be providing added pressure on the banks to make loans only to those companies favored by the Washington and New York elites – or at least will feel added pressure to do so. Continue reading "The Fed Warms To Climate Change"

Is Fed "Independence" Dead?

For the better part of the past four years, we've had to listen to the chattering classes defending the sanctity of the independence of the Federal Reserve. President Trump was routinely lambasted for constantly criticizing Jerome Powell, while several of his other nominees to the Fed, such as Herman Cain and Steven Moore, were deemed to be too cozy to Trump to warrant consideration. Both of them withdrew their nominations for other reasons, but it appeared that their nominations were DOA. For the same reason, the confirmation of the "controversial" Judy Shelton looks like it is going to die on the vine because she's been portrayed as Trump's lackey.

Yet now we have the prospect of Janet Yellen, the former chair of the Fed, being nominated as Joe Biden's Secretary of the Treasury. If nothing else, that will basically put the nail in the coffin of the notion of Fed independence. Does anyone seriously doubt that the Treasury and the Fed will be joined at the hip when the two most recent Fed chairs head those two agencies?

Yet that prospect probably won't be an impediment to her being confirmed by the Senate—on the contrary. The markets greeted Yellen's nomination with absolute euphoria, as well they should. The prospect of the Treasury and the Fed working more closely together in a time of crisis is certainly a reason for optimism. And it's certainly good for my portfolio, so I'm not complaining. But lost in all of the jubilation is that the idea of Fed independence has gone by the wayside, and nobody seems to give a hoot.

This is certainly not a bad thing. The whole idea of Fed independence was always suspect. The Fed is no more independent than the FBI or the Energy Department. It's just another branch of the government that arguably should always work in tandem with the Treasury for the betterment of the U.S. economy and usually does. Yet someone created this fiction that the Fed is somehow the moral equivalent of the Supreme Court and above politics. Continue reading "Is Fed "Independence" Dead?"