Does Fed Chairman Jay Powell Want to Elect Trump?

[Celerity]

https://prospect.org/blogs-and-newsletters/tap/2023-09-29-does-jay-powell-want-to-elect-trump/



The Federal Reserve is at risk of getting itself and the economy into a doom loop where its own actions create the inflation that the Fed supposedly is trying to extinguish and serve to kill the recovery. Exhibit A is mortgage costs. Mortgage interest rates have risen to a 23-year high of 7.31 percent, according to a survey released by mortgage purchaser Freddie Mac. And it isn’t just higher mortgage costs but more expensive car payments and credit card interest rates, as well as higher financing costs to homebuilders and small businesses. All of this increased inflation is the direct result of the Fed’s own policies.

Weirdly, higher interest rates are not counted in the Consumer Price Index. But they are certainly experienced as inflation by consumers and businesses. In addition, there are extraneous sources of price inflation that have nothing whatever to do with the supposed macroeconomic overheating that the Fed’s tight money is intended to squelch. Exhibit A is the rising price of crude oil, now approaching $100 a barrel, up from around $75 a barrel as recently as July. This shows up in higher consumer prices at the gas pump. But it’s not the result of increased motorist demand. It’s entirely the consequence of supply cuts by our enemy Vladimir Putin and our supposed new best friend, Saudi Arabia.

Exhibit B is the exorbitant prices charged by monopolists—that Biden’s all-of-government competition policies are challenging, including the two lawsuits by the Justice Department and the FTC against Google and Amazon. Again, this has nothing whatever to do with macroeconomic overheating. But these price hikes will douse a still-fragile recovery and will contribute to a softer economy in an election year, which will harm Biden and the Democrats. And that increase in measured “inflation” will give the Fed more ammunition to perversely keep money tight, destroying the economy’s soft landing and promoting 1970s style stagflation.

Where higher oil prices are concerned, Putin would surely prefer his pal Trump to President Biden. But what about the Saudis, who are part of an improbable partnership with Israel that Biden is helping to broker. Trump would surely be a lot more indulgent of Netanyahu than Biden. And what about Fed Chair Jay Powell, a Trump appointee whom Biden foolishly reappointed? There are enough variables in the coming election to make your head spin. But let’s not leave out the Fed, whose seats on the Board of Governors are now 4-to-3 Democrats; and Biden’s appointee Michael Barr, the vice chair for supervision, is increasingly a thorn in the side of Fed Chair Jay Powell. Would Powell prefer Trump? He is certainly behaving that way.

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[gab13by13]

1. Just look at the history of the federal reserve,

It has raised or lowered interest rates to screw Democratic presidents for decades.

There was an interesting segment about this today on Thom Hartmann.

[Fiendish Thingy]

9. You don't know what you're talking about

Yellen began hiking rates when Trump was president, and Powell continued.

Prior to the GFC of 2008, rates averaged in the 5-7% range.

We are just in the lower end of that historical average now.

[Scrivener7]

2. Yes.

[Silent Type]

3. Uncontrolled inflation would sink Biden, just like President Carter.

[roamer65]

4. The bear steepening of long term Treasuries is an ominous sign.

The big selloff in long term Treasuries that is happening right now is usually a predictor of a sizable stock market correction.

[Oldvet]

5. Yes

Biden's single biggest mistake was reappointing him.

Elizabeth Warren warned him not to.

[JCMach1]

10. This

[MustBeTheBooz]

6. Lose Powell now!

Haven’t said it here, but have said many times. This is not a person that understands microeconomics. Ditch him and move on for the better of The Reserve.

[Fiendish Thingy]

7. Utter Nonsense.

High interest rates reduce demand, and reduce inflation, as proven by declining CPI since Powell initiated hikes. He should have started hikes at least a year earlier, and his delay forced him to hike in larger increments and more often, but it worked. Inflation dropped from around 9% at its peak to 3 point something today.

The price of oil is beyond the control of the Fed. Congress could pass legislation raising taxes on the wealthy, and anti-trust measures could throttle price gouging, but both are unlikely to happen with morons in the house, so that leaves the Fed and the only tool at its disposal, rate hikes.

Without the hikes of the past two+ years, inflation would almost certainly be in double digits, and the economy would be in recession.

Then who would have better odds of winning in 2024?

[WarGamer]

11. One could argue that inflation would have dropped WITHOUT the rate hikes, too...

I don't like the principle that the economy only works when a subsection are dirt poor, living paycheck to paycheck.

[Fiendish Thingy]

12. One could argue that perspective, but one would be wrong.

There is no evidence to show that inflation would have decreased on its own without rate or tax hikes.

The economy is roaring - record low unemployment means more people have more money to spend (wages have been increasing at a higher rate than in the recent past as well). Higher demand leads to higher prices. Higher rates reduce demand.

[WarGamer]

14. Slight correction... well off people are better off.

All the data says the working class and poor are struggling.

Want me to dig up polling data?

[Fiendish Thingy]

17. The effects of inflation continue to linger

Gas prices are too high, and groceries are too.

That’s what’s affecting polling responses.

Nevertheless, inflation has come down significantly in the past 18 months.

Do you remember double digit inflation in the late 70’s-early 80’s? Items like coffee, sugar and milk went through the roof even more than other grocery and consumer items.

Then interest rates were jacked up, peaking at something like 18% (we’re just over 5% now). You could get 5% on a simple passbook saving account with no minimum balance.

Eventually, the hikes brought inflation down by 1983, clearing the way for Reagan’s victory in 1984.

Hopefully, Biden will get the same benefit.

[WarGamer]

18. agreed...

The problem is... the RATE of inflation is dropping but most people don't understand that foes NOT mean products are getting cheaper.

If a Gizmo went from $100 to $109 in one year... now it's going from $109 to $113 in a year.

I'm in California so I'm a bad example... but today I was in the grocery store.

Picked up a handful of lemons and saw the sign, 79 cents a lb... cool... looked twice, it was 79 cents EACH.

My Mom has a couple lemon trees at her house that produce like 20-30lbs a year of lemons...each.

Now we see $20 burger flipper jobs... you know who's getting BURNT?

Fixed income folks.

McDonalds full time pays $35k a year and tons of people make 10-15k a year with Social Security.

We're getting to the point of Monopoly Money. My 169k home in AZ is now $1.5M... (1996)

Fortunately my SoCal house is paid off... I refused to retire with ANY debt.

Oh and my son just bought a new truck... with great credit, 7%+ interest rate for 72 mos.

My Uncle sells real estate, people can't afford 6-7% mortgage rates.

We don't need for bad stuff to become less bad... we need a big change.

[Fiendish Thingy]

19. It's still better than the alternative of double digit inflation

Federal minimum wage should be $20/hr, which would create inflationary pressure, but also give working class folks some breathing room.

Your houses in AZ and CA may not stay as valuable as they are currently if interest rates stay high or continue to increase. If buyers can’t qualify for loans at current prices, sellers will have to lower prices or the market will freeze. This will make housing affordable for many more than at the present moment.

My first car loan, in 1977, was at 13% (I was a 20 year old college student with little credit history, and I was buying a used car, so I’m sure I didn’t get the best rate). My first mortgage, in 1985, was at 9% (although it was a 15 year loan, so a bit higher rate than a 30 year mortgage).

I agree we need big change, but changing the monetary policy at the Fed is not a primary focus of that needed change. Instead, raising taxes on the highest earners (that’s one thing about the good old days that should come back- 91% top tax bracket), expanding the social safety net, including child tax credit and universal healthcare.

I know I sure appreciated the 9+% COLA bump to my SS this past year.

Hopefully, the economic benefits of Bidenomics, including the good paying jobs created by the CHIPs, IRA and infrastructure bills will continue to emerge over the next 12 months, the growing power of unions will continue to lift up working families.

[WarGamer]

20. I'm not sure if $20/hr or $30/hr makes a difference.

What good is $20/hr when a 1BR apartment is $2400/mo?

What good is $30/hr when the average new car is $50k?

Affordability is more important than $$

I remember making like $15/hr in the early 90's... split an apartment with a buddy... it was like 900/mo and I got the master bedroom... had a $270 car payment on a new truck... constantly had money in my pocket.

Making things MORE expensive isn't the solution... pay fast food workers $100/hr then expect $19.99 Big Macs and 3/4 of store employees will be robots.

You know how we fix it?

Promote the supply chain.

Invest in Honduran Lemon orchards... or Vietnamese injection molding factories... allow importation of less expensive European cars that are currently blocked from sale in the US...

[Celerity]

13. No. For instance, rising interest rates raise the real cost of things when loans are involved.

People on ARMs and other variable rate loans get hammered. Same for credit card and student loan debt.

Rental costs are also affected as many of the flat buildings/developments have ARMs on them as well, and the landlords pass the rising costs onto the tenants in the form of rent increases.

[Fiendish Thingy]

15. Rising debt costs are not the same as inflation. Nt

[WarGamer]

8. My son just bought a new truck...

750 credit score, over 7% interest rate for 72mos

[andym]

16. Not really: Jimmy Carter appointed Inflation Hawk Volcker in 1979, knowing it would cost him

Why? Economists believed that raising interest rates could break the back of stagflation. Jimmy Carter knowingly appointed Volcker Fed Chairman who promised to raise interest rates. The Fed of that era did raise interest rates (much higher than today--the Federal Fund rate hitting 20% in 1981) to the point of causing a recession. However, the tactic eventually worked, though it required 4 years. It was not Reaganomics but the Fed's actions that ushered in the end of stagflation and the beginning of the modern economy linked to the growth of the mid-80s.

Who should get credit? Volcker and Jimmy Carter, who sacrificed his political future for the good of the country.

As a postscript, in early 1983, Reagan was underwater in the polls because the economy had not yet benefited from Volcker's actions, but when growth came with lower inflation, it was impressive.

Powell is just following the recipe set out by Volcker, but actually in a more moderate way.