The Weekly Wrap: Insights on Jerome Powell, the Political Fed Chair
Happy Friday! Here’s the weekly wrap from the Breitbart Business Digest.
This week saw a drop in bond yields, prompting some cautious commentary about potential issues, particularly from those who recently expressed concern over rising bond rates. Meanwhile, oil prices surged, approaching peaks not seen since the onset of the Iran War. It seems the market has already made up its mind about the forthcoming actions of Fed Chair Kevin Warsh and the Federal Open Market Committee. Also, a centrist liberal economist from Harvard discovered a key lesson about tariffs during a trip to Bangkok.
Let’s dive in!
The Bond Vigilantes Took a Break
It feels like just yesterday the financial media was alarmed about rising bond yields threatening the U.S. economy. In fact, that was just two weeks ago, and now we’re concerned about falling bond yields instead.
On October 7, the yield on 10-year U.S. Treasuries reached 5.36 percent, the highest since April 2002. Dire predictions followed about bond investors reacting negatively to inflation and deficits, even though the increase in yields seemed largely due to growing real yields, indicating a booming economy and rising returns on other investments. With inflation still strong and unemployment at a record low, it suggested that the Fed’s policy might need to be more aggressive. Yet, in the financial press’s narrative, rising yields were consistently framed as catastrophic.
Then on Thursday, 10-year Treasury yields dropped about 19 basis points, marking the largest single-day decline since the fall of Silicon Valley Bank. One financial outlet even declared, “10-Year Treasury Yield Suffers Biggest One-Day Drop in 3 Years.” So, just to clarify: rising yields were bad, and now that they’re falling, it’s still considered bad. It’s quite the spectacle, really.
In reality, investors began to worry that exuberance over AI investments may have gone too far. Concerns arose that the demand for new capital to support AI initiatives could surpass supply. Consequently, this led to a bit of a shift toward safer investments and tempered expectations for returns.
Still, it’s worth noting that 10-year yields remain near five percent, which doesn’t really indicate that bond investors are bracing for a downturn.
Skyrocketing Oil from the Persian Gulf
According to the Wall Street Journal, “Persian Gulf oil exports have surpassed prewar levels, aided by a makeshift shipping system under U.S. protection amidst ongoing attacks from Iran in the Strait of Hormuz.”
To break it down, oil shipments from the Persian Gulf have averaged over 24 million barrels a day in the week leading to October 18, which exceeds the 23.3 million barrels typically shipped before the Iran War. Although traffic through the Strait of Hormuz remains down—at around 82 percent of pre-war levels—pipelines in Saudi Arabia and the United Arab Emirates are helping to fill the gap. The Journal notes that an estimated 40 percent of non-Iranian crude exports now bypass the strait, up from 17 percent before the conflict.
The downside is that oil prices haven’t decreased. As of Friday, Brent Crude futures hovered around $117 a barrel, not far from the highs recorded during earlier closures of the Strait. One of the issues contributing to this is the rising cost of transporting oil, linked to security threats from Iran, Houthis, and other hostile groups—all of which complicate logistics in the region.
A Talk About Kevin
With the end of forward guidance, it was expected that financial markets would face uncertainty, but instead, we seem to have a “crisis of certainty.” The fed funds futures market is predicting a 90 percent likelihood that the Fed will keep rates steady in next week’s meeting, with a 78 percent chance of a rate hike in December.
This may not genuinely be a “crisis,” but it is concerning. Fed Chairman Kevin Warsh aims for the market to focus on the data rather than the Fed’s statements. However, the market seems to be treating Fed policy as more predictable than ever, almost detached from economic indicators.
If Warsh truly wants to reduce the market’s focus on Fed discussions, perhaps stating it isn’t enough. He might need to demonstrate—not just suggest—that the current approach is misguided. A surprise rate hike next week could be a method to achieve that.
Thinking of Wealth? Consider Having More Kids
Michael Konczal from the Economic Security Project analyzed recent Fed data and found that almost half of families in the top one percent have three or more children, while only about 40 percent of slightly less affluent families report similar numbers.
So, does having more kids correlate with wealth? It’s more plausible than it seems. More children often incentivize higher income levels. It’s also possible that traits leading to wealth are intertwined with higher fertility rates.
Konczal’s findings challenge the narrative that wealth decreases fertility—an argument often used to explain declining birth rates in wealthy nations. But don’t get too excited, because this could also suggest that growing inequality among top earners negatively influences fertility rates.
Liberals might interpret these results as justification for their agendas. They could argue that if financial safety nets and childcare were more accessible for lower-income families, they might have children like wealthier families do. However, wealthier families are generally less reliant on daycare or government assistance, which complicates the picture. Attempts to replicate the outcomes of affluent families through progressive programs have a long history of not succeeding.
Has the Tariff Crisis Abated?
Is the fear surrounding tariffs during Trump’s second term finally subsiding? According to Harvard economist Jason Furman, it seems so, as he reports from the IMF and World Bank gathering in Bangkok.
Examining Jerome Powell’s Political Engagement
Jerome Powell has held significantly more meetings with lawmakers and political figures compared to Janet Yellen or Ben Bernanke. This is according to a study examining the public calendars of recent Fed chairs by Thomas Drechsel of Johns Hopkins and Dali Tsakadze of the University of Maryland. Their research suggests this reflects an increasing need for the Fed to interact with political figures.
This interpretation of Powell’s engagement might be right, but it could also be due to his preference for connecting with political actors—something his predecessors did less often. Powell essentially politicized the Fed to a degree not seen before, and then had the audacity to accuse President Trump of a similar action when criticized.
This could also shed light on why Powell remains a Fed governor; he seems to enjoy being a part of the Washington scene and may prefer to stay longer than necessary. However, there’s speculation that he might step down after the midterms, likely to assess the Senate’s makeup prior to confirming his successor. That would seem typical for someone as politically inclined as Powell.
A Historical Note from Breitbart Business
This week marks the anniversary of Black Thursday, October 24, 1929—a date synonymous with the stock market crash and commonly regarded as the start of the Great Depression.
However, it’s important to remember that not everyone perceived it this way at the time. President Herbert Hoover stated on October 25, 1929:
“The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis. The best evidence is that although production and consumption are at high levels, the average prices of commodities as a whole have not increased, and there have been no appreciable increases in the stocks of manufactured goods. Moreover, there has been a tendency of wages to increase, and output per worker in many industries again shows an increase, all of which indicates a healthy condition.”
As it turns out, the subsequent downturn extended beyond just one or two industries, and it was anything but minor.
