Tag: Jerome Powell

In an early episode of The Simpsons, “Homer Defined,” Homer saves the nuclear plant from meltdown by randomly pushing a button on the control panel. Soon “to pull a Homer,” meaning to “succeed despite idiocy," becomes a popular catchphrase.

Is that what happened last week? Did Jerome Powell and the Federal Reserve inadvertently “pull a Homer” by helping to create a bank panic that actually might accelerate their desire to slow down the economy? That might not have been their intention, but it sure looks like it.

At least it does to former White House adviser and Goldman Sachs President Gary Cohn (although he didn’t reference The Simpsons).

"We're almost getting to a point right now where he's outsourcing monetary policy," Cohn told CNBC, referring to Powell. “I don't believe they [the banks] are going to loan money, or as much money, and therefore we're going to see a natural contraction in the economy.”

Minneapolis Fed president Neel Kashkari said basically the same thing on CBS’s Face the Nation Sunday.

"It definitely brings us closer [to recession]," Kashkari said. "What's unclear for us is how much of these banking stresses are leading to a widespread credit crunch. That credit crunch ... would then slow down the economy.”

Now, I sincerely doubt that the Fed deliberately phonied up a banking panic in order to put the brakes on the economy.

Just the same, though, it certainly did play a major role in creating one not just through monetary policy — by raising interest rates so high and so fast — but also through neglect.

Just as it did in the road leading up to the global financial crisis, the Fed allowed problems at several banks it regulated to reach the point that generated an electronic run on deposits and the banks’ eventual failure. Continue reading "Did The Fed "Pull A Homer"?" →

The Federal Open Market Committee meets next week, at which time it is expected to raise its benchmark interest rate another 50 basis points, to a range of 4.75% to 5.00%, if we correctly interpret Fed Chair Jerome Powell’s testimony to Congress last week, when he said “the ultimate level of interest rates is likely to be higher than previously anticipated.”

Before that, the market had expected a 25-basis point increase, equivalent to its most recent hike at the Jan. 31-February 1 meeting. As we know, his comments sent stock and bond prices sharply lower.

Since then, though, we’ve had some serious news coming out of the banking system, namely the failure of SVB Bank and the closure of Silvergate Capital (both regulated by the Fed!) and worries that some of the largest U.S. banks (also regulated by the Fed) are sitting on some huge, unrealized losses in their government bond portfolios.

In this atmosphere, is a larger than expected rate increase next week—i.e., 50 bps rather than 25—justified?

Or should the Fed maybe show a little restraint and raise the fed funds rate only a quarter point?

And if it does, what will be the likely market reaction?

In his Capitol Hill testimony, Powell focused – as you would expect – on the U.S. economy, namely its stronger than expected recent performance, particularly in the jobs market, which in February gained another 311,000 jobs even as the unemployment rate rose slightly to 3.6%.

The Fed seems hellbent on making up for its past errors of overly long, overly loose monetary policy by ramming through rate increases no matter how much harm they might cause.

Ignoring the second component of its Congressional mandate, namely promoting full employment, the Fed is instead totally focused on slaying inflation as fast as possible, even though getting from the current rate of inflation – 6.4% in January — back down to its 2% target will no doubt take some time.

After all, the Fed only started raising interest rates back in March 2022, when the fed funds rate was at or near zero. Continue reading "What Will The Fed Do In March?" →