Update 545 — Powell Promotes Recovery;
Accommodates Growth and Mild Inflation
Federal Reserve Chair Jerome Powell testified this week before the House Financial Services and Senate Banking Committees. Since his last testimony in February, the economy has begun to improve, with strong GDP growth expected this year. Inflation, as expected, has increased.
He has much to say about inflation and growth and was asked about both. During the hearings, Powell said that elevated levels of inflation are expected in the early stages of an economic recovery. If Powell, whose term as Fed Chair has seven months left, were to change monetary policy course now to address inflation concerns, he knows that would run the risk of snuffing out the recovery.
Below, we review Powell’s testimony and make the case for Powell to stay the course on monetary policy but halt the Fed’s deregulatory supervisory trend, particularly if he is interested in a re-appointment.
Good weekends all,
Dana
—————————————
In the coming months, the Fed will face critical decisions on monetary policy, such as when to begin tapering its asset purchases and whether to raise interest rates earlier. These actions may influence Biden’s decision to renominate Powell.
Powell Stays on Message
In his testimony, Powell stayed consistent with public statements he has made over the past several months. He said the economy is getting stronger but recognized a still-recovering labor market. Powell also noted that current levels of inflation are higher than the Fed originally expected. But he continued to assert that contributing factors are temporary and inflation will moderate later in the year.
In the House, Powell mostly faced questions about inflation and the labor market. Committee Democrats prompted Powell to explain why high inflation will be transitory and argued President Biden’s infrastructure proposals would alleviate ongoing supply chain problems. Republicans cited inflation worries.
On the Senate side, members focused more on regulatory policy, systemic risk due to climate change, and the proposed Central Bank Digital Currency. Senate Banking Chair Brown and Sen. Warren strongly criticized the Fed for its deregulatory policies, including weakening stress tests and the Volcker Rule.
The questioning by members reflected perspectives on Powell’s future. Republicans acted largely favorable toward Powell, with Financial Services Ranking Member McHenry even endorsing Powell for renomination. Powell’s dovish monetary policy notwithstanding, Republicans would support his renomination due to his conservative actions on bank regulation and supervision. Brown and Warren’s questioning indicate that progressives may be supportive of a replacement pick.
A Stay on Deregulation?
Brown and Warren captured the concern that the Fed’s recent stress tests demonstrate weaknesses in the current financial regulatory regime. If the Fed takes further deregulatory actions in the coming months, the case for President Biden nominating new individuals to key Fed positions may become clearer.
In recent years, the Fed effectively folded the Comprehensive Capital Analysis and Review (CCAR) process into the Dodd-Frank Stress Test process after removing the qualitative objections and the pass/fail quantitative assessment. The Fed had imposed restrictions on buybacks and dividends on large financial institutions during the COVID-19 pandemic to ensure financial stability. But these restrictions were lifted following each firm’s “success” during the most recent stress test. The big banks then predictably announced a frenzy of stock buybacks and dividends.
Under the Biden administration, new possibilities have opened. Quarles’ term as Vice Chair for Supervision expires in October. With that vacancy, Biden can nominate a pro-regulation Vice-Chair who can pursue more progressive regulatory policy. Top progressive agenda items include:
- Re-strengthening the Fed’s stress tests
- Reforming the Fed’s oversight of bank mergers
- Repealing the Trump-era FSOC guidance, which tied its hands on designating SIFIs
Quarles recently released the details of the models the Fed uses for the stress test, practically giving the largest financial institutions the answer to an exam. The Fed has effectively made the stress tests meaningless, giving Wall Street more relief at the expense of financial stability.
Quarles has eased regulations wherever he could, which Democrats have sounded the alarm about for years. Powell has not been as pro-deregulation as his Vice-Chair, but Democrats have become frustratedwith Powell’s resistance to strengthening rules and regulations.
A key upcoming test will be how Powell implements Biden’s recent executive order calling on the Fed to update its guidelines for bank mergers. If Powell maintains the current trajectory of deregulation in the coming months, progressives will likely push Biden harder to nominate a new Chair.
Staying the Course on Monetary Policy
Even as Republicans are fear-mongering over inflation, the Fed has kept a steady course on monetary policy. Maintaining an accommodative monetary policy in the short term will be crucial to ensure a robust economic recovery.
The Fed has continued to keep interest rates at near-zero and will continue its purchases of assets for some time, countering the narrative that inflation is a serious economic problem. The following factors indicate current elevated levels of inflation are temporary:
- Disproportionate Sectors: While the June CPI readings showed increases in prices across the board, certain sectors have risen significantly higher than others. Food prices increased by a moderate rate of 2.4 percent. Yet roughly one-third of the June CPI reading is accounted for by used car prices jumping 45.2 percent due to high demand and an ongoing computer chip shortage. Other disproportionately high jumps came from the travel industry.
- Temporary Supply/Demand Issues: As expected, pent-up demand has been unleashed with the reopening of the economy, leading to a spike in consumer spending. For sectors of the economy that shut down last year, reestablishing supply chains has been difficult, leading to more persistent supply chain problems than even the Fed originally expected. However, Powell reiterated his belief that supply problems will be resolved later in the year, bringing prices down. A notable example of this dynamic is lumber, which saw a huge price spike in the spring followed by a rapid descent in the summer.
- Tempered Market Expectations: The market barely reacted to the elevated June CPI data, indicating that most investors are following the Fed’s lead. Long-term inflation expectationsremain anchored at slightly above 2 percent — in line with the Fed’s long-term objective. Despite Republican messaging to the contrary, investors do not seem concerned that the economy is on track for a return to the prolonged inflation of the 1970s.
Powell has said repeatedly this year that the Fed will wait to raise interest rates and taper its asset purchases until economic conditions, particularly the labor market, have significantly improved. The FOMC’s June decision to maintain an accommodative monetary policy reflects the Fed’s view that the economic recovery is still incomplete. In the coming months, the Fed will face critical decisions about when to begin tapering its asset purchases and whether to raise interest rates earlier — the outcome of which could directly bear on Powell’s renomination.
The Fed currently sees a greater risk in restraining the economic recovery than that posed by inflation — and this should continue to be its outlook. Prioritizing the recovery and a return to full employment must take precedence over overblown fears of inflation.
Staying on as Chair?
With Powell’s term as Fed Chair ending in February, these Humphrey-Hawkins hearings may have been his last. What remains to be seen is whether Powell will continue his dovish and deregulatory stances in the months ahead. Recent reporting suggests that Biden is considering nominating a new Chair. The President has an opportunity to significantly reshape the Fed, with Powell’s, Quarles’, and Vice Chair Richard Clarida’s terms all ending soon and an open seat on the Board of Governors still unfilled.
The Fed’s accommodative monetary policy will be crucial to maintaining the recovery in the months ahead. But Powell’s openness to further deregulation stands in opposition to Biden’s agenda and poses systemic risk. By nominating a new vice chair for supervision or a new chair such as Lael Brainard with a stronger appetite for regulating the big banks, Biden could send a clear message that he wants a Fed that will support the economic recovery and prioritize financial stability.
What’s Going down i am new to this, I stumbled upon this I’ve discovered It absolutely helpful
and it has helped me out loads. I’m hoping to contribute & aid different customers
like its helped me. Great job.
Right here is the right blog for anybody who hopes to understand this topic.
You understand so much its almost hard to argue with you (not that I really would want
to…HaHa). You definitely put a fresh spin on a subject that’s been discussed for
years. Excellent stuff, just excellent!
If some one desires to be updated with hottest technologies therefore
he must be visit this website and be up to date every
day.
Thanks in favor of sharing such a pleasant thinking, piece of writing is pleasant, thats why i have read
it entirely
An intriguing discussion is definitely worth comment.
There’s no doubt that that you should publish more on this issue,
it might not be a taboo subject but usually people don’t talk about these topics.
To the next! Cheers!!
What i do not realize is if truth be told how you are now not actually much more smartly-appreciated
than you may be now. You’re so intelligent. You already know thus considerably on the subject of this matter, made me
in my view imagine it from a lot of numerous angles.
Its like women and men aren’t fascinated except it’s one thing to accomplish
with Lady gaga! Your personal stuffs outstanding. All the time take
care of it up!
I have been browsing on-line more than three hours today, yet
I never found any fascinating article like yours.
It is beautiful worth sufficient for me. Personally, if all website owners and bloggers made just right
content material as you probably did, the net will likely be much more helpful than ever before.
It’s very simple to find out any matter on net as compared to textbooks, as I found this article at this website.
Thank you for any other informative blog. Where else may I get that type
of information written in such a perfect means?
I’ve a mission that I am just now running on, and I have been on the glance out for such information.
WOW just what I was looking for. Came here by searching for petsmart
Hello there! I could have sworn I’ve been to this blog before but
after browsing through some of the post I realized it’s new to me.
Anyhow, I’m definitely glad I found it and I’ll be book-marking and
checking back frequently!
I was suggested this website by my cousin. I’m not sure whether this post is written by him as nobody else know such detailed about my trouble.
You are wonderful! Thanks!
When someone writes an article he/she retains the idea of a user in his/her brain that how a user can understand
it. So that’s why this article is outstdanding. Thanks!
Every weekend i used to go to see this website, as
i wish for enjoyment, as this this web site conations truly
nice funny material too.
I think the admin of this site is in fact working hard for
his web page, since here every material is quality based information.
Hi there! This is kind of off topic but I need some advice from an established blog.
Is it very hard to set up your own blog?
I’m not very techincal but I can figure things out pretty quick.
I’m thinking about setting up my own but I’m not sure
where to begin. Do you have any tips or suggestions?
Thank you
Please let me know if you’re lookong for a author foor your weblog.
You have some really good articles and I feel I would be a goid
asset. If you ever want to take some of the load off, I’d really like to
write some material for your blog in exchange for a link back tto mine.
Please send me an email if interested. Cheers!
web page
I like what you guys are usually up too. This kind
of clever work and reporting! Keep up the good works guys I’ve incorporated you guys to our
blogroll.
is cialis generic
I am now not sure where you’re getting your info, but good topic.
I needs to spend a while finding out more or understanding more.
Thanks for fantastic information I used to be on the lookout
for this information for my mission.
I all the time emailed this web site post page to all my friends, for the
reason that if like to read it afterward my contacts will too.
Excellent website you have here but I was wanting to know if you knew
of any message boards that cover the same topics discussed here?
I’d really love to be a part of community where I can get advice from other
knowledgeable people that share the same interest.
If you have any recommendations, please let me know.
Bless you!
cialis 20mg for sale
dCEbrTKLon
tsvHCKeahJqoBD
For most up-to-date news you have to visit the web and on web I found this
web page as a finest web page for most recent updates.
Some really interesting information, well written and broadly speaking user pleasant.
free dating
russian women dating scams
Pingback: keto diet made easy
100 gay dating site
gay dating sites los angeles
gay dating scams in ghana
Hmm it seems like your blog ate my first comment (it was super long) so I guess
I’ll just sum it up what I had written and say, I’m
thoroughly enjoying your blog. I as well am an aspiring blog writer
but I’m still new to everything. Do you have any tips for newbie
blog writers? I’d genuinely appreciate it.
I all the time used to study post in news papers but now
as I am a user of web therefore from now I am using
net for articles or reviews, thanks to web.
Its like you read my mind! You appear to know a lot
about this, like you wrote the book in it or something.
I think that you could do with a few pics to drive the message home a
little bit, but instead of that, this is great blog.
An excellent read. I will definitely be back.
Thankyou for helping out, great info .
When I initially commented I clicked the -Notify me when new feedback are added- checkbox and now each time a remark is added I get four emails with the identical comment. Is there any way you possibly can remove me from that service? Thanks!
Nice post. I learn something more challenging on different blogs everyday. It will always be stimulating to read content from other writers and practice a little something from their store. I’d prefer to use some with the content on my blog whether you don’t mind. Natually I’ll give you a link on your web blog. Thanks for sharing.
It’s remarkable to pay a quick visit this web page and reading the views of all friends regarding this post, while I am also zealous of getting
knowledge.
Greetings from California! I’m bored to death at work so I decided to check out your site on my iphone during lunch break. I love the information you present here and can’t wait to take a look when I get home. I’m amazed at how quick your blog loaded on my mobile .. I’m not even using WIFI, just 3G .. Anyhow, awesome site!
Great blog here! Also your website loads up very fast! What host are you using? Can I get your affiliate link to your host? I wish my web site loaded up as quickly as yours lol
Hello.This post was extremely fascinating, especially since I was investigating for thoughts on this issue last Friday.
sexy gay sites 2021 -dating
japanese gay dating game
i hate dating gay
gay cock sucker dating
dating sites for older gay men
adam gay dating