Who could have seen this coming?
In July, we saw the seeds of the Democrats plan begin to take hold as several politicians took aim at Fed Chair Jerome Powell as poll numbers started to slide and the Midterms looked like being a disaster:
“It is important for the Fed not to overreach and trigger a recession unnecessarily, as part of its effort to bring inflation down,” said Representative Hakeem Jeffries of New York, the No. 5-ranked House Democratic leader.
“Inflation is a global problem, and is actually not as bad in America as it is in almost every other developed economy in the world,” he told Bloomberg.
Then, in September, none other than Senator Elizabeth Warren unleashed hell on Mr.Powell, tweeting that:
“Chair Powell just announced another extreme interest rate hike while forecasting higher unemployment. I’ve been warning that Chair Powell’s Fed would throw millions of Americans out of work — and I fear he’s already on the path to doing so.”
Interestingly, we noted at the time that Senate Baking Committee Chair Sherrod Brown, an Ohio Democrat, defended Powell during an interview on Bloomberg Television
Well that has all changed now…
In a sternly-worded letter (see full letter below), Brown makes it clear what he would like Powell to do (nothing more)…
“As you know, the Federal Reserve is charged with the dual mandate of promoting maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy. It is your job to combat inflation, but at the same time, you must not lose sight of your responsibility to ensure that we have full employment.
For the first time in decades, we have seen historic job growth, and workers have begun to see wage gains, gains that your prior actions to stabilize the economy helped achieve. Yet, many workers and their families are struggling under the weight of inflation.”
So nothing particularly new there aside from the clear tone biased towards not breaking anything… except that’s all The Fed has…
Then Brown utters the following, exposing his utter cluelessness as to the pernicious effects of inflation:
“However, a family’s “pocketbook” needs have little to do with interest rates, and potential job losses brought about by monetary over-tightening will only worsen these matters for the working class. “
Sadly, if The Fed just folds in its inflation fight now that pocketbook will become a toilet-paper holder.
Brown goes on, seemingly clear that one side of the dual mandate is far more important right now (cough Midterms collapse cough):
“We must stay focused on addressing the root causes of inflation without putting workers’ livelihoods at risk”
…
“Monetary policy tools take time to reduce inflation by constraining demand until supply catches up – time that working-class families don’t have”
…
“We must avoid having our short-term advances and strong labor market overwhelmed by the consequences of aggressive monetary actions to decrease inflation, especially when the Fed’s actions do not address its main drivers.“
Then the pi?ce de resistance of doublespeak:
“For working Americans who already feel the crush of inflation, job losses will make it much worse. We can’t risk the livelihoods of millions of Americans who can’t afford it. I ask that you don’t forget your responsibility to promote maximum employment and that the decisions you make at the next FOMC meeting reflect your commitment to the dual mandate.”
But hey, remember The Fed is apolitical and independent and anyone who tries to sway them is a treasonous traitor.
When President Trump publicly spoke about The Fed cutting rates, some former Fed officials were not happy”
“I am not pleased,” said Carl Tannenbaum, a former Chicago Fed official and chief economist at Northern Trust.
“The remarks certainly aren’t an immediate threat to Fed independence, but they break with the tradition of respectful distance.”
Randall Kroszner, a former Fed governor, said the central bank has withstood political pressure before and will continue to do so under Mr. Powell’s leadership.
“The Fed has often faced political pressures — from Congress, presidents, Treasury secretaries and innumerable outside groups,” said Mr. Kroszner, an economics professor at the University of Chicago.
“My experience at the Fed is consistent with what Jay Powell recently said — being non-political is deep in the Fed’s DNA — and I believe that Jay will keep it that way.”
As a reminder, here are President Biden’s words from June:
“My plan is to address inflation. That starts with a simple proposition: respect the Fed, respect the Fed’s independence, which I have done and will continue to do,” Biden said.
It appears that has changed.
And all this despite the economy being “strong as hell”…
As a reminder, the odds of a recession within the next 12 months are now 100%…
Finally, will Brainard be the one to save America? Judging by Brown’s letter, he seems to like her messaging:
As Vice Chair Brainard indicated, in some sectors, increased margins exceed wages paid to workers, and there is “ample room for margin recompression to help reduce goods inflation as demand cools, supply constraints ease, and inventories ease.”
Higher interest rates and borrowing costs have not led companies to bring down prices.
Translation: don’t over-do it on the inflation fight because corporate greed is to blame. Now that’s a narrative the left can get behind!
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Read the full letter below:
