We know things are not as they appear, especially when it comes to Washington DC.
For months, Jerome Powell toed "the company line" when it comes to his discussions in public. Of course, this makes sense since the Fed Chair is in his position until the end of January. To retain his job, he needs to be reappointed by President Biden and confirmed by the Senate.
What was a given not long ago might not be as it appears. As always, reading the tea leaves in Washington is a fun trick to pull off.
One of the big strikes against Powell is the "trading scandal" that is taking place at the Federal Reserve. Naturally, in Washington, everything is made a bigger deal than it really is.
A couple of member resigned over trading on what is perceived insider information. This was brought up by the esteemed Senator Warren in her questioning of Powell. While the Chair answered the questions, he simply should have stated the Fed was following the lead of Congress. If the nation's legislative body can engage in insider trading then surely it should be policy for the entire country.
Powell, however, did not say that. At that time, Senator Warren stated she would not support confirming Powell if reappointed. What was also presumed was that Powell was going to get to keep his job.
That was before a big deal was made about Powell's trades. There were trades of between $1.5M-$5M earlier this month. This was just before the market sold off.
Of course, if we take a closer look at the trades, it is evident that Powell did a poor job timing the market. In fact, if that was his goal, he missed by a wide mark. The reality is that he is entering and exiting positions all the time. This is common and not prohibited by law. There were a number of trades of lesser amounts for a number of months preceding this only to be ignored by the media.
Alas, in Washington, everything is under a microscope.
It appears that Powell is starting to see that someone is staging his downfall. This is how things work in politics and he is well aware of this game. I believe he is the most politically savoy Fed Chair we saw. It does not, though, make him immune to the ramifications.
This led him to start pushing back against both the Administration and, in a round-a-bout way, Congress.
Speaking to the Bank of International Settlements, he explained how the dual mandate of low inflation and maximum unemployment, both instituted by Congress, is impossible in the present environment. The culprit: The Biden Administration.
Naturally, he did not call them out in so many words. He did, during the Q&A, cited the fact that forced mandates and maintaining pandemic prohibitions were stifling economic output. It was also noted that the US is presently 5 million jobs beneath the levels of February 2020, the last full month before the pandemic hit.
Especially hard hit is the service sector which is a vital part of the economy. It is lagging due to the policies that are still in place, causing a reduction in employment along with personal spending.
This is a marked departure for the Chairman. It could be that he sees the writing on the wall.
Powell took a major hit for his "transitionary" statement when it comes to inflation. The problem is that many believe that his view is in the next one or two CPI reports. That is not how the Fed operates.
Most anything the Fed does, for it to fully penetrate the economies, both US and global, takes time. Thus, when he says something is "transitory", he is looking 12 months or more down the road.
Part of the conversation to the BIS centered around that the fact that it is impossible to have sustained inflation without full employment. With the service sector lagging, it will enter economic contraction with the stimulus cut off. This, ultimately, filters to the rest of the economy.
For now, according to Powell, he sees the job market as rocky. This is in direct contrast to Janet Yellen at Treasury. She believes that the job market will clear up in the near term. It is evident she is not looking at any of the overseas data. But then, that is not surprising considering who it is.
Therefore, it is going to be the fiscal (government) policy that is going to affect these situations going forward. Since Biden is intent on pursuing the same path, economic contraction is almost certain to result. This puts the Fed in the position of simply continuing easing, which further tightens economic conditions by locking more money in the banking system, and lowering interest rates. The problem with the later is banking lending is also contracting, something that Powell is well aware of.
Powell has been very coy about where he stands on Central Bank Digital Currencies (CBDCs). This is how he operates. Quite frankly, it appears he would never favor them yet he cannot come out and say it. Anyone in cryptocurrency knows that people like Elizabeth Warren are drooling to get CBDCs passed. This would effectively put monetary policy in the hands of politicians like her.
A CBDC would be the end of the commercial banking system. It would also give Congress (in this case) full control over interest rates. While they might not focus upon that, by using programable money, the politicians could easily instill negative interest rates by having money expire if not spent.
This would radically change economic conditions, causing a massive expansion of wealth inequality, taking it to levels unforeseen before.
But then again, when do dimwits in elected office ever think of that?
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