Tag: Fed Chair Jerome Powell

Failure To launch

Posted on by George Yacik

Can everybody just chill a little? Yes, the Fed is “indicating” it’s moving to a less accommodative stance, no more government bond purchases, higher interest rates, maybe a decrease in its massive $9 trillion balance sheet, but it’s decidedly not going away. It simply can’t. Tightening? Hardly.

Indeed, as the results of its January 25-26 monetary policy meeting show, the Fed is basically being dragged kicking and screaming into stopping its asset purchases and raising interest rates to fight inflation, neither of which it actually announced at the conclusion of the meeting. Rather, it said it would buy “at least” another $20 billion of Treasury securities and $10 billion of mortgage-backed securities before ending the purchases “in early March.” It also didn’t raise interest rates, instead saying, “it will soon be appropriate to raise the target range for the federal funds rate.” Whenever that is, although everyone seems to believe it means its next meeting, which is set for March 15-16 (there’s no meeting in February). But again, the Fed didn’t say that.

If inflation is so darn dangerous to our nation’s economic health, why is the Fed willing to let it run another month or two before it starts acting instead of, to use Jerome Powell’s famous phrase, simply “talking about talking about” it? Continue reading "Failure To launch" →

Rescue Me

Posted on by George Yacik

How transitory is transitory? Maybe inflation won’t turn out to be as “transitory” as we would like, but even the Federal Reserve thinks inflation will ease sometime in the not-too-distant future, likely this year. The bond market certainly doesn’t seem overly concerned about it, with the 10-year Treasury note trading late last week at about 1.75%, or about six percentage points below the current inflation rate. If inflation is such a big problem that must be addressed immediately, shouldn’t long-term bond rates be closer to 5% or 6% rather than less than 2%?

Then why is the Fed all of a sudden so worried about stamping out inflation when it’s also predicting that the inflation rate will come down fairly soon? What’s the rush?

According to its most recent economic projections released after its December 15 monetary policy meeting, the Fed said it expected inflation to fall to 2.6% this year, from 5.3% last year, then fall to 2.3% next year and 2.1% in 2024. Yet now the Fed can’t seem to stamp out inflation fast enough, even though it was Fed policy not too long ago to let inflation “burn hotter for longer.” What happened with that? Continue reading "Rescue Me" →

Powell Wimps Out

Posted on by George Yacik

Pretty much as expected, the Federal Reserve last week said that, in the face of rising inflation and a booming economy and job market, it would further reduce its purchases of Treasury and mortgage-backed securities and raise interest rates.

But not yet.

Beginning in January, the Fed said it will be buying $60 billion in bonds a month, which is down 50% from the original schedule of $120 billion a month and its recently reduced plan of $90 billion, announced only a month ago. Which means the program will end next March, as opposed to the original termination date of June, at which time the Fed expects to start raising interest rates unless something happens in the meantime.

The Fed is projecting three 25 basis-point increases in its federal funds rate next year, followed by three more in 2023 and two more in 2024. That would put the fed funds rate in a range of 1.4% to 1.9% at the end of 2023, up from a range of 0.4% to 1.1% in its previous projection in September. The current rate, of course, is 0.1%, or near zero. Continue reading "Powell Wimps Out" →

The Battle Against Inflation Begins

Posted on by George Yacik

There shouldn’t be too many surprises coming out of this week’s Federal Reserve monetary policy meeting. The newly hawkish Fed is likely to formally announce its intention to accelerate the tapering of its asset purchases, as Fed chair Jerome Powell told Congress recently, echoed by other Fed officials so that the program ends sometime around March of next year, rather than several months later, in order to ward off the inflation that Powell now concedes isn’t transitory.

The bigger question is, will the Fed actually be successful in putting the inflation genie back in the bottle? After trying unsuccessfully for more than 12 years to lift inflation past its 2% target, why should we now believe that the Fed suddenly has the smarts and the oft-mentioned “tools” to rein in inflation that is now at its highest level in several decades?

The data-driven Fed has more than enough justification to expedite the taper, which would then lead the Fed to start raising interest rates off zero soon after, rather than waiting until sometime at the end of next year or even 2023.

Inflation

On Friday, the government announced that the year-on-year rise in the consumer price index jumped to 6.8% in November, up from 6.2% the prior month and the fastest pace in nearly 40 years. It was also the sixth straight month that it topped 5%, adding further evidence that the rise in inflation this year is anything but temporary. The YOY rise in the core index, which excludes food and energy prices, rose 4.9%, up from October’s 4.6% pace and the steepest increase since 1991.

Does that sound transitory to you? Continue reading "The Battle Against Inflation Begins" →

What To Expect From Powell 2.0

Posted on by George Yacik

By renominating Jerome Powell as Federal Reserve chair over Fed governor Lael Brainard, whom he nominated to be Vice-Chair, President Biden has supposedly chosen the safer and less political route. But rest assured that in Powell's second term, which requires Senate confirmation, likely to be a slam dunk, the Fed will be involved in politics like never before.

That's because Biden has several other seats to fill on the seven-member Fed board of governors, and the composition and thinking of that board promises to be a lot different than the current roster, even if it has the same chair. It will likely move more aggressively to implement the current administration's progressive policies.

Indeed, while Biden may have chosen Powell to serve another term, it will likely be Sen. Elizabeth Warren and her acolytes who will have the biggest influence on Fed policy in the years to come.

The most important seat other than the top two is likely to be that of the vice chair for supervision, currently held by Randal Quarles, who said he plans to resign from the Fed board by the end of the year. If Sen. Warren and her allies have their way, that position will go to someone who will further the left's agenda to impose and enforce stricter regulations on banks, including climate change policies. Continue reading "What To Expect From Powell 2.0" →