The determination of Federal Reserve Chairman Jerome Powell is not well known.
An emerging consensus among Fed watchers on Wall Street is the main reason the Fed will cut rates at least twice this year, despite signs of persistent inflation, The Post has found.
If CEOs and executives who follow the Fed are to be believed, and these people have sources inside the central bank’s buildings in Washington, D.C., Chairman Powell has already warned of the possibility of high inflation last week. ignores the possibility that it is abnormal.
The first rate cut will be in June since he started raising rates in March 2022.
A second event is planned for September, they told me.
And it will probably be the third time after the presidential election in November.
Consumers who lose out
People familiar with the matter said both politics and Powell’s style as Fed chair played a role.
And if the economy misjudges the threat of inflation again, the big losers could ultimately be American consumers.
Fed watchers say new, more alarming inflation numbers could force Chairman Powell to take a more hawkish stance, which would be a real concern.
Of course, Mr. Powell’s style is to telegraph the market, even if it’s not part of his job description.
The Fed’s dual mandate is not to make traders rich, but to achieve price stability while maximizing employment.
That said, Mr. Powell is rather consistently flawed, as he believes (incorrectly, in my opinion) that the stability of financial asset prices is part of his job. , hates throwing curveballs at the market.
All of his recent statements come as other data emerges that supports (or justifies) his core belief that inflation is subdued and that we need to protect ourselves from recession. This is consistent with at least two small interest rate cuts this year.
The heat for further rate cuts will come from the increasingly toxic political atmosphere in Washington, D.C., especially surrounding Biden’s presidency.
Powell has shown disappointment in the past. In the midst of an economic boom a few years ago, and with the 2020 election looming, former President Donald Trump’s mean tweets forced Chairman Powell to reverse course on raising interest rates, perhaps the first Fed chief in recent history to do so. This is probably the worst example of pandering.
Cutting interest rates in late 2019 for no good reason other than to silence Trump left the Fed with nothing to do when it really needed to cut rates months later during the coronavirus outbreak. There are fewer options.
The Biden White House knows Powell will be easily marked. And they also believe that lowering interest rates is the way to win re-election in the fall, because the conversation around Sleepy Joe needs to change quickly.
Biden’s lack of mental acuity is no longer whispered in Democratic circles. I’m in a state of complete panic now.
The special counsel’s report on whether Biden properly handled classified documents confirmed what most Americans have seen: the president is a frail old man with declining mental capacity.
The Democratic Party needs some support and believes the economy is its last hope.
That’s why Mr. Biden’s managers are relying on Mr. Powell, both publicly and privately, to cut rates. They believe the key numbers (low unemployment and decent GDP) are strong and could get even stronger with pressure from the Fed, which will make financing easier.
The market will like it, and people may actually forget about the still-ongoing inflation and vote for Sleepy Joe.
Indeed, a booming job market, another bull market, and relative economic stability are bad selling points for someone as unstable as Donald Trump, who has baggage of his own, both personal and legal. isn’t it.
a tragic miscalculation
The problem with pushing Powell is if he miscalculates.
Remember “temporary inflation”?
Now, one of the reasons Mr. Powell put the brakes on liquidity so hard (he raised short-term interest rates from zero to 5.5% 11 times in less than two years) was because he misread economic indicators in 2021. is.
Mr. Powell reasoned simply because he knows that excessive fiscal and monetary stimulus will not destabilize prices, both during and after the worst of the coronavirus pandemic and its lockdowns.
Simple economics (and common sense) tells us that large amounts of money chasing the same amount of goods and services (or smaller amounts due to lockdowns) will always cause massive inflation, as it has in the past.
Inflation has finally come down. This is good news.
The bad news: Prices for necessities like food and energy remain horribly high, another reason why Biden’s poll numbers are so bad heading into an election year.
Last week’s spike in CPI and PPI highlights the dangerous nature of inflation. Inflation never dies easily. That’s why the history of battle is never a smooth road.
Recall how the great Federal Reserve Chairman Paul Volcker had to raise interest rates significantly at least twice to contain the price spiral in the late 1970s and early 1980s.
After a few turbulent years, economic growth continued for decades once inflation was brought under control.
That great economy (and Mr. Volcker’s place in history) was achieved because he withstood political pressure, actually stuck his nose in it, and focused on the job.
If Mr. Powell cared about his legacy, he would do the same.
