{"id":53049,"date":"2020-10-14T11:31:15","date_gmt":"2020-10-14T15:31:15","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=53049"},"modified":"2020-10-14T11:31:15","modified_gmt":"2020-10-14T15:31:15","slug":"federal-reserve-trick-or-treat","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2020\/10\/federal-reserve-trick-or-treat\/","title":{"rendered":"Federal Reserve: Trick or Treat"},"content":{"rendered":"

Want to guess who Federal Reserve Chairman Jerome Powell is going as for Halloween? Based on his most recent speech on the economy, it\u2019s got to be the Grim Reaper.<\/p>\n

Even as reports continue to show the economy recovering pretty quickly following the government-mandated shutdown of the spring and summer \u2013 which several of his Federal Reserve colleagues have cited \u2013 Powell continues to paint the direst picture of the American economy. However, this time, he has gone beyond the bounds of the Fed\u2019s independence, publicly politicking for a new federal fiscal stimulus package. If one doesn\u2019t arrive soon, he warned, it will be \u201ctragic\u201d and \u201clead to a weak recovery, creating unnecessary hardship.\u201d<\/p>\n

\u201cThe recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods,\u201d Powell said in a speech<\/a> last week to the National Association for Business Economics.<\/p>\n

I had been under the impression that the Fed was supposed to be \u201cindependent\u201d of the government, or at least that\u2019s what we were told repeatedly when President Trump went off on Powell for not doing what he wanted. However, it seems to be ok if Powell cedes that independence voluntarily and takes sides on a political debate.<\/p>\n

This isn\u2019t so much an example of charter creep, which just about every government agency and leader does, as much as a charter leap, with the Fed not only taking over more and more of the economy and financial markets but publicly lobbying for government action to make it so.<\/p>\n

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As dangerous as that is, Powell\u2019s rationalization for doing so is not built on a solid foundation. Despite the fact that the Fed has recently raised its outlook for economic and jobs growth, Powell is still claiming that the whole nascent recovery is built on sand, which could collapse without further intervention from the government on the fiscal side and the Fed on the monetary side.<\/p>\n

\u201cThe expansion is still far from complete,\u201d he said. \u201cAt this early stage, I would argue that the risks of policy intervention are still asymmetric (i.e., could go either way). Too little support would lead to a weak recovery, creating unnecessary hardship.\u201d<\/p>\n

That may or may not be true, but right now, the economy has not collapsed even though a lot of the assistance passed earlier this year by Congress, such as individual stimulus checks and bonus unemployment payments, has already been spent or expired. True, some indicators have slowed, but others have continued to rebound without additional help. Some analysts argue the necessity of another stimulus package.<\/p>\n

Take the jobs market. Last month the unemployment rate edged down again to 7.9%, down sharply from April\u2019s peak of 14.7%. The economy created another 661,000 more jobs, less than expected, but more than half of the 22 million jobs lost in March and April have since been recovered.<\/p>\n

The Institute for Supply Management\u2019s manufacturing index rose for the fifth consecutive month in September to 55.4 while its services index, which tracks most of the economy, rose nearly a point to 57.8. Both are well in expansion territory. The Conference Board\u2019s Consumer Confidence Index jumped 15.5 points to 101.8, its biggest one-month increase since 2003.<\/p>\n

At least some Fed officials have taken notice of those numbers. John Williams, the president of the New York Fed and vice chairman of the Fed\u2019s monetary policy committee, said \u201cthe recovery has actually been stronger, more robust than many were expecting\u201d and that he is \u201coptimistic that we\u2019ll be able to continue to see a pretty strong economic recovery for the rest of this year, into next year.\u201d James Bullard, the St. Louis Fed president, enthused that it wouldn\u2019t be \u201cout of the realm of possibility\u201d that the economy may be back to near full recovery as early as the end of this year. <\/p>\n

The best that Powell could find to say is that \u201cwhile the combined effects of fiscal and monetary policy have aided the solid recovery of the labor market so far, there is still a long way to go.\" Fair enough. But he leavened that with predictions of more dire consequences for failing to act. \u201cA long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,\u201d he said. \u201cThat would be tragic.\u201d<\/p>\n

Maybe Powell should take a ride to his local Walmart or Costco and see the parking lot jammed with cars, just like it was before March, to see what rotten shape the economy is in.
\nSo why is Powell so pessimistic?<\/p>\n

Ever since the 2008 financial crisis, the Fed has injected itself more and more into American life, often for very compelling reasons. But that\u2019s apparently not enough for Powell, who sees an opening to make the Fed\u2019s position permanent, where the government just keeps spending zillions of dollars that it doesn\u2019t have on never-ending crises, raining money everywhere, while the Fed picks up the tab. <\/p>\n

Maybe Santa Claus would be a more appropriate costume.<\/p>\n

Visit back to read my next article! <\/p>\n

George Yacik<\/a>
\nINO.com Contributor - Fed & Interest Rates<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Want to guess who Federal Reserve Chairman Jerome Powell is going as for Halloween? Based on his most recent speech on the economy, it\u2019s got to be the Grim Reaper. Even as reports continue to show the economy recovering pretty quickly following the government-mandated shutdown of the spring and summer \u2013 which several of his […]<\/p>\n","protected":false},"author":16,"featured_media":53053,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[9264,6824,511,31360,4192],"class_list":["post-53049","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-fed-chair-jerome-powell","tag-federal-open-market-committee-fomc","tag-federal-reserve","tag-jobs-growth","tag-us-economy"],"yoast_head":"\nFederal Reserve: Trick or Treat - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"Ever since the 2008 financial crisis, the Federal Reserve has injected itself more and more into American life, often for very compelling reasons.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2020\/10\/federal-reserve-trick-or-treat\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Federal Reserve: Trick or Treat - 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