Author: George Yacik

What To Expect From Powell 2.0

Posted on by George Yacik

By renominating Jerome Powell as Federal Reserve chair over Fed governor Lael Brainard, whom he nominated to be Vice-Chair, President Biden has supposedly chosen the safer and less political route. But rest assured that in Powell's second term, which requires Senate confirmation, likely to be a slam dunk, the Fed will be involved in politics like never before.

That's because Biden has several other seats to fill on the seven-member Fed board of governors, and the composition and thinking of that board promises to be a lot different than the current roster, even if it has the same chair. It will likely move more aggressively to implement the current administration's progressive policies.

Indeed, while Biden may have chosen Powell to serve another term, it will likely be Sen. Elizabeth Warren and her acolytes who will have the biggest influence on Fed policy in the years to come.

The most important seat other than the top two is likely to be that of the vice chair for supervision, currently held by Randal Quarles, who said he plans to resign from the Fed board by the end of the year. If Sen. Warren and her allies have their way, that position will go to someone who will further the left's agenda to impose and enforce stricter regulations on banks, including climate change policies. Continue reading "What To Expect From Powell 2.0" →

What's Next For The Fed?

Posted on by George Yacik

Now that the Federal Reserve has formally announced its taper plans, what can we expect next?

The Taper

First of all, let’s not go into panic mode because the Fed is suddenly reducing its asset purchases. In the statement following its November 2-3 meeting, the Fed said it would “begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities.” In the scheme of Fed purchases, that’s practically nothing, you won’t even feel it. Indeed, in the very next sentence, the Fed also announced the converse of that, namely that starting this month, it “will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage-backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month.”

Note the operative word, Increase. So yes, it’s accurate to say that the Fed is reducing its asset purchases, but it’s not going away, far from it. It’s still buying a ton of securities. Remember that the Fed’s balance sheet currently totals $8.5 trillion and still growing. Now, the Fed did add that “it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook,” which most market participants take to mean that the Fed is more likely to speed up, not slow down, the pace of purchases, given the current robust state of the economy. That’s a good thing and long overdue. Continue reading "What's Next For The Fed?" →

Prepare For A Post-Powell Fed

Posted on by George Yacik

If financial market participants were voting, Jerome Powell would likely win a resounding second term as Federal Reserve chair. He would also probably be approved by the Senate, but that would assume President Biden nominated him. Unfortunately, that's become less likely to happen.

The latest straw against him was the trading scandal that led to the resignation of two of the Fed's 12 regional bank presidents. While the Fed last week announced new restrictions on trading to prevent this from happening again, it also brings the scandal back into the public eye at the worst possible time for Powell, whose terms end in February. While he certainly can't be blamed for the deeds of others—especially when they happened at the Fed's regional banks, not the Fed itself—and he deserves credit for acting swiftly and decisively in their wake, the fact is that they occurred on his watch. As a result, he won't be able to deflect all of the blame.

More to the point, it exposes how cozy the Fed is to the financial markets when its officials are supposed to be purer than Caesar's wife. While Powell probably didn't know about those two Fed presidents' trades beforehand, the episode makes it look like the Fed chair isn't in charge of his own house. Continue reading "Prepare For A Post-Powell Fed" →

Is The Worker Shortage Transitory?

Posted on by George Yacik

For the past several months, there have been two "T" words that have captivated the financial markets.

The first, of course, is the "Taper," which now looks like it may be starting as early as next month. Following its September monetary policy meeting, the Federal Reserve—using its usual weasel words—didn't exactly say it was ready to taper, but basically confirmed that it would begin soon, saying that "a moderation in the pace of asset purchases may soon be warranted." So we can probably expect the Fed to provide more definite information following its next meeting in early November, and that may include a start date of later that month.

The second "T" word is "Transitory," as in the "inflation is transitory" mantra Fed chair Jerome Powell has been repeating for most of 2021. However, recently he's backed off a little on that stance, telling Congress last month that while he believes inflation will eventually return to the Fed's 2% target rate, "these effects have been larger and longer-lasting than anticipated." In other words, maybe inflation isn't as transitory as he says, therefore the need to taper.

Now, after two crummy monthly job reports in a row, it may be fair to ask if the shortage of workers holding back the economy isn't transitory either. Continue reading "Is The Worker Shortage Transitory?" →

What To Expect From This Week's Fed Meeting

Posted on by George Yacik

Was last week’s tiny decrease in the August consumer price index just enough to dissuade the Federal Reserve from announcing this Wednesday that it’s planning to start tapering its massive $120 billion a month asset purchase program? The financial markets and the financial press interpreted (hoped?) the report signaled that inflation might really be transitory after all and that the Fed will have no reason to reduce its purchases—at least not yet.

The headline CPI number rose 0.3% from July, slightly below the prior month’s 0.5% jump. The year-on-year increase came in at 5.3%, down a mere one-tenth of a percentage point from July’s 5.4% pace. That prompted near-euphoria from some analysts that the recent spike in inflation over the past five months had mercifully come to an end, giving the Fed little reason to begin the taper soon.

Needless to say, the release a few days before of the producer price index, which jumped 0.7% from the prior month and 8.3% YOY, got much less attention, even though producer prices often presage higher consumer prices. Indeed, many manufacturers have begun to announce they must and will raise prices and make them stick, meaning inflation is anything but transitory.

The Fed, however, is likely to stick to its earlier policy intention to let inflation run “hotter for longer” and not make a commitment to start tapering just yet, despite recent comments from a bevy of Fed officials—including Fed Chair Jerome Powell—that it is poised to do so. The Fed never said what “hotter” or “longer” meant, but five straight months of 4%-plus annualized inflation may not have met the criteria, whatever it is. Instead, Powell has realigned his focus from inflation to the jobs market, fostering full employment being the Fed’s other mandate. And on that score, following August’s disappointing jobs report, we are definitely not in the taper zone just yet. Continue reading "What To Expect From This Week's Fed Meeting" →