Tag: Jerome Powell

Panel on “Central Bank Independence and the Mandate—Evolving Views”

Mary Pat Campbell

Link: https://www.federalreserve.gov/newsevents/speech/powell20230110a.htm

Excerpt:

It is essential that we stick to our statutory goals and authorities, and that we resist the temptation to broaden our scope to address other important social issues of the day.4 Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.

In the area of bank regulation, too, the Fed has a degree of independence, as do the other federal bank regulators. Independence in this area helps ensure that the public can be confident that our supervisory decisions are not influenced by political considerations.5 Today, some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate, wise, and consistent with our existing mandates.

Addressing climate change seems likely to require policies that would have significant distributional and other effects on companies, industries, regions, and nations. Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections.

At the same time, in my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision.6 The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.

Author(s): Jerome Powell

Publication Date: 10 Jan 2023

Publication Site: Federal Reserve

Fed Chair Warns President Biden “We will not be a climate policymaker”

Mary Pat Campbell

Link: https://mishtalk.com/economics/fed-chair-warns-president-biden-we-will-not-be-a-climate-policymaker

Excerpt:

  • Central Bank Independence: “Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.”
  • New Goals: “Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.”
  • Stick to Mandates: “It is essential that we stick to our statutory goals and authorities, and that we resist the temptation to broaden our scope to address other important social issues of the day.”
  • Climate Change: “Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a ‘climate policymaker.‘” 

Author(s): Mike Shedlock

Publication Date: 10 Jan 2023

Publication Site: Mish Talk

Federal Reserve hikes rates again

Mary Pat Campbell

Link: https://www.thecentersquare.com/national/federal-reserve-hikes-rates-again/article_da8ec844-7be2-11ed-9977-17d7d24d73fb.html

Excerpt:

The U.S. Federal Reserve announced a new rate increase of half a percentage point Wednesday in its ongoing effort to curb inflation.

The Fed raised the rate by 50 basis points, as expected, the seventh rate hike this year. This increase is smaller than the four previous 75 basis point increases but is still a notable increase, putting the range at 4.25%-4.5%.

“Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low,” the Fed said. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

The Fed blamed the Russian war in Ukraine for the price hikes. That war delayed the supply chain and increased costs, but the price increases began long before that war, due in part to trillions of dollars in federal debt spending since the pandemic began.

Author(s): Casey Harper

Publication Date: 14 Dec 2022

Publication Site: The Center Square

The ‘Experts’ Were Never Going To Fix Inflation

Mary Pat Campbell

Link: https://reason.com/2022/10/27/the-experts-were-never-going-to-fix-inflation/

Excerpt:

Debate now rages about whether the Federal Reserve should continue to raise interest rates to tame inflation or slow down these hikes and see what happens. This is not the first debate we’ve had recently about inflation and Fed actions. The lesson we should learn, and I fear we won’t, is that government officials and those advising them from inside or outside the government don’t know as much as they claim to about the interventions they design to control the economy.

As a reminder, in 2021, the dominant voices including Fed Chairman Jerome Powell asserted that the emerging inflation would be “transitory” and disappear when pandemic-induced supply constraints dissolve. That was wrong. When this fact became obvious, the messaging shifted: Fed officials could and would fight inflation in a timely manner by raising rates to the exact level needed to avoid recession and higher unemployment. Never mind that the whole point of raising interest rates is precisely to soak money out of the economy by slowing demand, which often causes unemployment to rise.

…..

Over at Discourse magazine, my colleague Thomas Hoenig—a former president of the Fed’s Kansas City branch—explains how Fed officials faced similar pressures during the late 1960s and 1970s. Unfortunately, he writes, “Bowing to congressional and White House pressure, [Fed officials] held interest rates at an artificially low level….What followed was a persistent period of steadily higher inflation, from 4.5% in 1971 to 14% by 1980. Only then did the [Federal Reserve Open Market Committee], under the leadership of Paul Volcker, fully address inflation.”

Often overlooked is Volcker’s accomplishment: the willingness to stay the course despite a painful recession. Indeed, it took about three years from when he pushed interest rates up to about 20 percent in 1979 for the rate of inflation to fall to a manageable level. As such, Hoenig urges the Fed to stay strong today. He writes, “Interest rates must rise; the economy must slow, and unemployment must increase to regain control of inflation and return it to the Fed’s 2% target.” There is a cost in doing this; a soft landing was never in the cards.

Author(s): VERONIQUE DE RUGY

Publication Date: 27 Oct 2022

Publication Site: Reason

Wharton professor Jeremy Siegel says Jerome Powell is making one of the biggest policy mistakes in the Fed’s 110-year history, and it could lead to a major recession

Mary Pat Campbell

Link: https://finance.yahoo.com/news/wharton-professor-jeremy-siegel-says-191800487.html

Excerpt:

The Wharton professor Jeremy Siegel has a big issue with the Federal Reserve’s aggressive interest-rate hikes in its bid to tame inflation, and he’s worried that the central bank is making the biggest mistake in its history and may provoke a steep recession.

Siegel said inflation is starting to come down significantly, but the Fed is still moving forward with its rate hikes.

He said it could be “one of the biggest policy mistakes in the 110-year history of the Fed, by staying so easy when everything was booming.”

…..

“I think the Fed is just way too tight. They’re making exactly the same mistake on the other side that they made a year ago,” Siegel added.

To Siegel’s point, the Fed has had a lousy record of accurately forecasting where it expects interest rates to be just a few months into the future.

….

“I am very upset. It’s like a pendulum. They were way too easy through 2020 and 2021, and now ‘we’re going to be real tough guys until we crush the economy,'” Siegel said of the Fed.

Siegel expects the Fed to “eventually see the light” as none of their recent predictions are likely to come true.

“I think they’re going to be forced to lower the rates much more rapidly than they think,” Siegel said, a move that could set up stocks for a potential recovery from their ongoing decline.

Author(s): Matthew Fox

Publication Date: 25 Sept 2022

Publication Site: Yahoo Finance

By Design, the Fed May Be Tightening Too Much

Mary Pat Campbell

Link: https://www.wsj.com/amp/articles/by-design-the-fed-may-be-tightening-too-much-11655370001

Excerpt:

The Fed has often moved interest rates by 0.75 percentage point or more in recent decades. But until this week, it had always done so in a downward direction. Indeed, it was a hallmark of Fed policy that it always cut interest rates faster, with less prompting, than it raised them.

…..

This asymmetry reflected the Fed’s perception of risks. If it cut rates too little, the economy might spiral down and the financial system implode. If it cut them too much, inflation might, some years later, rise. Throughout this prepandemic period, inflation was low and, at times, too low, but that wasn’t a big deal. Moreover, during that low-inflation, low-interest-rate era, rates couldn’t fall very much — the Fed called this the “zero lower bound” — so best to act quickly to forestall a downward spiral. If inflation was a problem, there was no limit to how high rates could go.

This philosophy got taken too far. The Fed kept rates too low for too long last year (and the Biden administration enacted too much fiscal stimulus) out of a mistaken belief that inflation was a remote threat compared with prolonged high unemployment.

The result is that risks are now asymmetric in the other direction. Inflation is too high and a self-sustaining wage-price spiral is a real threat. Asked why, after carefully laying the groundwork for a half-point increase, the Fed raised rates by 0.75 point Wednesday, Mr. Powell pointed to an “eye-catching” report that showed long-term inflation expectations rising ominously.

Author(s): Greg Ip

Publication Date: 16 Jun 2022

Publication Site: WSJ

Fed Hikes Rates 75 Basis Points; Powell Says 75 or 50 Likely in July

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2022/06/15/fed-hikes-rates-75-bps-intensifying-inflation-fight/

Graphic:

Excerpt:

The Federal Reserve raised interest rates by 75 basis points — the biggest increase since 1994 — and Chair Jerome Powell said officials could move by that much again next month or make a smaller half-point increase to get inflation under control.

Slammed by critics for not anticipating the fastest price gains in four decades and then for being too slow to respond to them, Chairman Jerome Powell and colleagues on Wednesday intensified their effort to cool prices by lifting the target range for the federal funds rate to 1.5% to 1.75%.

“I do not expect moves of this size to be common,” he said at a press conference in Washington after the decision, referring to the larger increase. “Either a 50 basis point or a 75 basis-point increase seems most likely at our next meeting. We will, however, make our decisions meeting by meeting.”

Author(s): Craig Torres

Publication Date: 15 June 2022

Publication Site: Think Advisor

In a Rare White House Meeting, Biden Meets Powell to Discuss Inflation

Mary Pat Campbell

Link: https://mishtalk.com/economics/in-a-rare-white-house-meeting-biden-meets-powell-to-discuss-inflation-guilty-meets-guilty

Graphic:

Excerpt:

PCE stands for Personal Consumption Expenditures. Those numbers come from the Bureau of Economic Analysis (BEA)

CPI stands for Consumer Price Index. Those numbers come from the Bureau of Labor Statistics (BLS)

The key difference is the PCE includes prices paid on behalf of consumers (e.g. Medicare and Medicaid), whereas the CPI only contains prices directly paid by consumers.

The PCE tends to overweight medical expenses while the CPI tends to overweight rent.

The Fed’s preferred measure of inflation is PCE.

CPI and PCE Both Seriously Flawed

Neither measure directly incorporates home prices. Economists explain this away by stating homes are a capital expense. 

OK, so what? The fact is, rising home prices (asset prices in general), are a direct reflection of inflation.

By ignoring asset prices, the Fed helped blow the biggest economic bubble yet. Now the Fed struggles to contain the serious inflation it helped create.


Author(s): Mike Shedlock

Publication Date: 30 May 2022

Publication Site: Mish Talk

Biden to Nominate Jerome Powell for Second Term as Federal Reserve Chairman

Mary Pat Campbell

Link:https://www.wsj.com/articles/biden-will-tap-jerome-powell-for-new-term-as-fed-chairman-11637589600?mod=hp_lead_pos1

Excerpt:

President Biden said he would nominate Federal Reserve Chairman Jerome Powell to a second term leading the central bank, opting for continuity in U.S. economic policy despite pushback from some Democrats who wanted someone tougher on bank regulations and climate change.

Mr. Biden said he would also nominate Fed governor Lael Brainard as vice chairwoman of the central bank’s board of governors. Prominent liberals like Sen. Elizabeth Warren (D., Mass.) had warned the president against picking Mr. Powell, and progressive groups mounted a last-ditch campaign to pressure the president to tap Ms. Brainard for the top job.

Author(s): Nick Timiraos and Andrew Restuccia

Publication Date: 22 Nov 2021

Publication Site: Wall Street Journal

Powell Renominated for Fed Chair But Biden Will Reshape the Fed to His Liking

Mary Pat Campbell

Link:https://mishtalk.com/economics/powell-renominated-for-fed-chair-but-biden-will-reshape-the-fed-to-his-liking

Excerpt:

Recall that former Fed Chair Ben Bernanke commented “Only three opinions matter, the Fed Chair, vice Chair, and President of the New York Fed.”

When it comes to banking regulation, we need to add vice chair of bank supervision.

Biden has will have named three of these four slots but Powell is a holdover.

Is everyone happy? 

Author(s): Mike Shedlock

Publication Date: 22 Nov 2021

Publication Site: Mish Talk

Fed Says Economy Has Progressed Toward Goals, Tees Up Bond Taper

Mary Pat Campbell

Link: https://www.wsj.com/articles/fed-says-economy-has-made-progress-toward-its-goals-teeing-up-bond-taper-11627495233

Excerpt:

The Fed cut its benchmark interest rate to near zero in March 2020 and has been purchasing at least $120 billion a month in Treasurys and mortgage bonds to provide extra stimulus to the economy. Officials since the end of last year said those purchases would continue until they see “substantial further progress” toward their goals of low unemployment and stable inflation.

Officials said in a statement Wednesday, at the conclusion of their two-day meeting, “the economy has made progress toward these goals” this year and indicated they would “assess progress in coming meetings.”

That is a clue the Fed could outline plans to start reducing, or tapering, the purchases, later this year. The central bank’s next meetings are scheduled for Sept. 21-22 and Nov. 2-3.

Fed Chairman Jerome Powell said at a virtual news conference Wednesday that the central bank was nowhere near considering plans to raise interest rates.

Author(s): Nick Timiraos

Publication Date: 28 July 2021

Publication Site: WSJ

Fed Chairman Vows to Keep Supporting Economic Recovery

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2021/02/23/fed-chairman-vows-to-keep-supporting-economic-recovery/

Excerpt:

The Fed will continue $120 billion in monthly bond purchases and communicate any change.

Powell doesn’t expect any large and persistent increases in inflation; some pickup will be temporary.

Powell says getting the pandemic under control is needed for the economy to reopen.

Author(s): Bernice Napach

Publication Date: 23 February 2021

Publication Site: Think Advisor