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Fed Chief Straps on the Knee Pads


Fed Chief Powell supposedly has strong support inside Congress to fend off Trump’s calls for lower interest rates. How do we know this? Well, there was this headline atop the lead story in Wednesday’s Wall Street Journal: ‘Powell’s Support Inside Congress Is Deep’. And here was the sub-hed, in case you missed the point: ‘Lawmakers on both sides say they would oppose any bid to oust the Fed chairman’. Perhaps it was just bad timing, but the financial world’s newspaper of record has rarely looked more stupid. Oust Powell??  Give us a break!  Less than a year into the job, the guy is looking like a potential hero in the promiscuous borrower/lender Hall of Fame, a worthy successor to ‘Easy Al’ Greenspan.  For at the moment readers were savoring the WSJ story with their morning coffee, Powell was on Capitol Hill, telling Trump and the loose-credit rabble exactly what they wanted to hear — i.e., that money can be made to grow on trees, and that he will be more than happy to make this happen later in the month, when the FOMC next meets. On this news, U.S. stocks and gold shot higher, yields fell, and on Wall Street, at least, all seemed right with the world.

If there is any surprise in this, it is Powell’s obligingly donning the Fed chairman’s traditional knee pads without making any of the usual face-saving obfuscations. You’d think he would at least feign token resistance, since he knows how badly he is being played by Trump and Wall Street. For make no mistake, by putting the U.S. on a likely course toward negative interest rates, he has one-upped even his philosophical mentor, Easy Al. Sucking up to monetary doves and giving them a whiff of cocaine as the broad stock averages flirt with record highs and unemployment at a 50-year-low is an all-in bet that Powell cannot possibly win, since recessions do happen (and the next one promises to be a doozey).

Confirming Our Worst Fears

By capitulating when U.S. prosperity is at flood tide, the Fed chief looks like a wimp and a patsy. He will be judged even more harshly by posterity if he is still in the driver’s seat when America’s long expansion ends. Powell could say things now that might help him rescue his reputation later:  “The economy is strong and looks like it will need no help, but we will certainly keep our options open.” But instead of employing nuanced double-speak like all Fed chairmen before him, he has embraced the arguments of Trump and the rabble, worrying aloud about the trade war and global “uncertainties” ending the good times. Of course they will, regardless of whether credit stimulus keeps the music playing for a little longer. But if “managing expectations” is Powell’s job, hitting the monetary panic button as he is about to do could backfire by elevating our worst fears about how very close we are to a day of reckoning, notwithstanding statistics that say the economy is booming.

Comments on this entry are closed.

Chris July 14, 2019, 2:25 pm

Hey rick. Chris from Luigi’s here. Still long Gold Silver, and Physical cash with just enough stock to say I’m a player.Best always Chris

Ambrose Bierce July 14, 2019, 12:44 pm

Powell did something no other Fed chief has done, he listened and took notes and feigned concern. Don’t count your rate cuts just yet, and then behold the balance sheet rolloff in MBS could make the cut a moot point.

R T Williams July 13, 2019, 10:20 pm

Is the proportion of Americans in gainful employment increasing or decreasing?
Is the absolute number up or down?


More important, I should think, is how gainful those jobs are. High-paying manufacturing jobs are disappearing, leaving a low-wage chasm between barista and computer-science worker. Moving the low-skilled worker into gainful employment presents a very difficult structural problem. Amazon is trying to get a jump on it by putting $700 million into job training. Every big company needs to do this, since the answer is not going to come from a corrupt college system that has forgotten the purpose of an education. RA

John Jay July 11, 2019, 11:59 am

If I had my chance to ask Jerome Powell just one question at a press conference it would be………
“Mr Powell, with all due respect sir, would you tell me how you manage keep a straight face during your testimony to Congress?”
Best straight man since Bud Abbott!
Even looks a lot like Bud at the end of his days.
And the same math skills as Lou and Mr. Fields calculating the back room rent!

none July 11, 2019, 10:19 am

Bank of Japan has its holdings of the national debt having reached nearly 50%.

The BOJ pledge on how it will guide future monetary policy is with very low interest rates until the spring of 2020.

I suggest the central banking system will stay in tact and be quite successful in handling the debt ridden system.

In the BOJ case, as I suggested and its nation, the Nkki after a 50% fall in price of another bear phase will be the buy of a life time. It will be as the USA buy of a lifetime in INDU 1942 after 2-3 decades of extreme debt though out society.

It will be the rising of Japan that is coming, and several bear markets will continue to linger for decades in the USA as it will not be the place for investment.

Japan will rise out of the ashes once again, as even when 2 atom bombs where once drop of them.

Nikki inflow and major buy level is 15,731 to 14,100 level. This level will be like the 1942 INDU USA stock market buy level.

The JYP is looking towards a 200-300% increase in its currency.

All the BOJ has to do after it has accumulated such a large equity position is to induce positive sentiment for buyers to seek investment of what they now own.

The next major bull market in the length of decades (such as we had here in the USA for 3-4 decades) is Japan.

Have a great day Rick.

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