Jerome Powell, go now!

Happy Friday! Welcome to the latest edition of Breitbart Business Digest Weekly Initiatives. As this week wraps up, we are quickly approaching an expiration point. If the upcoming week isn’t confirmed, it certainly won’t be extraordinary.

This week, we saw Jerome Powell assert his belief that he could remain Fed chairman indefinitely, at least until his successor is confirmed. The Fed met as well, offering a set of new economic forecasts that, frankly, seemed to fly under the radar for most. Meanwhile, oil prices surged, and discussions around the impact of AI on jobs were less than optimistic.

The Fed’s Growing Optimism

Let’s dive into Chairman Jerome Powell’s grip on central bank control for a moment. But first, it’s worth mentioning that the Fed’s latest Quarterly Summary of Economic Projections (SEP) barely caught those projections. This hints at a gradual shift away from their previous anti-growth stance.

The median long-term growth rate forecast for the real economy nudged up from 1.8% in September to 2.0% in March. It might seem like a minor adjustment, but it carries significance. This marks the first time since December 2020 that the projection surpassed 1.8%. The last time inflation touched 2% was back in June 2016. When paired with the Fed’s inflation target of 2%, overall growth looks set to hit 4%.

Perhaps it’s not immediately clear why this matters—especially considering that the Fed’s forecasts can be quite off base. Still, think of these long-term expectations as not just predictions; they are also objectives. The long-run growth rate, alongside inflation and unemployment expectations, highlights the Fed’s vision for the economy’s potential. When they indicated that a 1.8% growth rate was their baseline, it suggested that growth above that was considered a signal of overheating.

The distinction between 1.8% and 2% annual growth might appear negligible at first glance, but it compounds over time. Over a decade, a 2% growth rate translates to a >2% larger economy compared to one growing at 1.8%. Fast forward 50 years, and that difference becomes significant—about 10.5% more. In a century, it’s almost 22% greater.

It seems the Fed’s view of the long-term federal funds rate has also shifted, bumping up from 3.0% in December to 3.1% in March. Not long ago, we noted that this rate had been stuck around 2.5% since 2019 before this recent rise in 2023. When the Fed raised rates while still clinging to a 1.8% GDP forecast, it indicated that those hikes were part of a scheme to manage inflation. Essentially, that pointed to a tightening monetary policy relative to real GDP growth.

However, the Fed’s upward revision of its growth forecast in March exceeded the increment in its interest rate prediction, implying a kind of policy easing in the long run.

Jerome Powell’s Ongoing Fed Saga

At this stage, Jerome Powell’s statements shouldn’t shock anyone. Yet, he declared to reporters this week that if Kevin Warsh isn’t confirmed by May 15, Powell intends to assume the role of chairperson Protem. He framed this as aligning with legal expectations and past practices. However, I find this reasoning flawed and somewhat marginal.

It’s quite unusual for Mr. Powell to make such comments without consulting the Federal Reserve Board and the rest of the Federal Open Market Committee (FOMC). I mean, it seems unlikely that Powell could simply declare himself chairman until a successor steps in, right? Even the most independent supporters of the Fed likely believe that someone from the board should be appointed to oversee things during this transitional phase. Surely Powell knows who to contact regarding successor laws. (A tip: His name is Mark E. Van Der Weide, the General Counsel since 2017.)

There are nuances I didn’t delve into previously. Should Warsh not be confirmed by May 15, the president will appoint an interim Fed chair. A member from the Federal Open Market Committee could take the position. Typically, the board selects a chair for the committee, but if President Trump has objections, that could disrupt the usual protocol. But that seems unlikely; Trump would likely need to select one of his fellow governors. Choosing someone else as chair would be quite divisive.

Furthermore, it’s important to note that The Fed Board fundamentally controls monetary policy. While the board sets the interest rate on reserves, the FOMC primarily manages the federal funds rate. The chairman oversees not just monetary policy but also the Fed’s institutional framework, including staff and regulations. So, even if there’s a shift in FOMC leadership, its impact may be limited.

Our Economic Dependence on Oil

This week, oil prices persist in their upward trend, nearing $110 per barrel. To put things into perspective, they were below $60 per barrel just last year. Prices began their ascent early this year, speculation around a U.S. strike on Iran driving them up to about $70 by February’s end.

Current prices exceed their three-year high of $95. Economist James Hamilton has pointed out that breaching this three-year peak often signifies a looming recession. Prices above $100 are likely to prompt consumers to cut back in other spending to accommodate fuel costs, consequently slowing production as businesses react to profit pressures.

Of course, this scenario hinges on maintaining these prices over time. Unfortunately, that seems probable, given the ongoing conflict without signs of resolution. It’s curious, though—why is it that the strait is called the Strait of Hormuz? It doesn’t quite reflect the bends in the Persian Gulf.

As it stands, there isn’t a straightforward policy solution. Tapping into strategic oil reserves generally yields only short-term impacts on global prices. The Jones Act, which restricts foreign vessels from transporting cargo between U.S. ports, likely wouldn’t change the situation significantly, especially given its temporary suspension.

And yes, it’s safe to say that people are quite frustrated with rising gas prices.

AI: The Modern Cotton Gin?

AI’s impact on the job market is creating quite a stir, with sentiments echoing from both techno-optimists and techno-pessimists alike. The core debate revolves around how swiftly AI will obliterate jobs and which sectors will feel the brunt of its effects.

We tend to recoil from such widespread agreement. Now, let’s explore an alternative view. When Eli Whitney introduced the cotton gin, the general expectation was that demand for slave labor would dwindle. Instead, the efficiency of slave labor surged across the South, enhancing profitability for cotton cultivation—and the acreage dedicated to cotton production ballooned.

Hints are emerging in today’s context. Labor productivity in the U.S. has spiked unexpectedly, likely tied to early AI adoption. Should AI bolster productivity, it could lead to heightened demand for human labor rather than a decline. While pinning down the exact dynamics is tricky, history suggests that labor-saving tech doesn’t necessarily kill demand for labor, contrary to popular belief.

A Glimpse into History

On March 20, 1602, the Governor General of the Dutch Republic established the Vereenigde Oostindische Company, known in English as the Dutch East India Company. This was a significant move for economic nationalism. Politician Johann van Oldenneveldt advocated for merging two major trading firms, cautioning against allowing Spain and the newly formed British East India Company to take over.

The Dutch East India Company dominated trade east of the Cape of Good Hope for 21 years, launching with a capital of 6.4 million guilders. It marked the world’s first publicly traded multinational corporation—a true joint-stock company. Any Dutch citizen could buy shares and trade them on the emerging Amsterdam Stock Exchange, with a balanced board representing each state.

Its power was remarkable. The charter permitted it to wage wars, sign treaties, build forts, maintain armies, and mint coins. The Dutch state effectively outsourced empire-building to private enterprises. At its height in 1670, the Dutch East India Company was the wealthiest firm globally, employing around 50,000 people and controlling a lucrative spice trade, consistently offering about 18% in annual dividends.

Yet, throughout history, mismanagement and hubris rear their heads, catching up with even the mightiest. By the 1790s, the Dutch East India Company went bankrupt, burdened by debts from smuggling, corruption, rising expenses, and stubborn dividends amid a downturn in profits.