Jerome Powell’s ‘conical’ pursuit could cost him his job

Jerome Powell should be a layup for a second term as chairman of the Federal Reserve, and yet he isn’t.

The problem stems from Powell’s plans to start “scaling back” or ending the massive printing of money by the Fed through asset purchases in the bond market. This makes it vulnerable to renewal, a growing number of Wall Street Fed watchers tell me.

The Bear’s case for Powell begins when his cut reveals the big lie promulgated by Democratic leaders that their new spending plan is “paid off.”

Without the Fed grabbing all that debt to finance the blowout, the lie would be made public by significantly higher interest rates next year, because there aren’t enough taxes to raise or of foreign buyers to finance our deficit, according to the renewal of Powell. opponents.

These higher rates on Treasury debt would almost certainly cause a recession. Congress would turn red and Joe Biden’s goal of emulating FDR would turn to mud.

That’s really why you hear progressives like Senator Elizabeth Warren calling for Powell’s head, these people say. This is also why the White House, despite public statements in favor of Powell, would have doubts about his reappointment.

As the country’s central bank, the Federal Reserve is supposed to control the money supply without fear of political repercussions. Yet its dual mandate of keeping inflation low while maintaining full employment is still a careful balancing act with obvious policy implications.

Paul Volcker defined the independence of the bureau with huge rate hikes in the late 1970s and early 1980s. This helped cost Jimmy Carter the presidency, but wiped out the scourge of inflation that ravaged the American economy and destroyed the middle and working classes.

We’ve come a long way since Volcker’s time, unfortunately. My colleague Neil Cavuto says Powell reminds him more of Alfred Pennyworth, Bruce Wayne’s ultra-loyal butler in the Batman saga.

Powell’s background at the Fed shows that he was often much more obsequious than old Alfred. Recall that it only took a few nasty tweets from President Trump a few years ago for Powell to roll back obviously needed Fed rate hikes when the economy appeared to be overheating.

After Trump’s defeat to Biden in the November election, Powell continued to print money at an alarming rate, maintaining a near-zero interest rate policy and massive asset purchases despite the post-recovery. COVID.

Now, Powell has suddenly started showing spine, and for good reason: the prices of everything from food to housing are rising endlessly. There is so much money flowing around that average people trade fake cryptocurrencies and chase after losing memes stocks.

These types of asset bubbles never end well. (Think of the 2008 financial crisis, or the Nasdaq crash before that.) Worse yet, inflation is a pernicious tax on workers, which history shows is the fastest way to wreak havoc. social unrest.

This is where tapering comes in. When the Fed buys bonds, as it has done since the start of the pandemic, it stimulates the economy for growth; rates are falling and banks are flooding with liquidity lending to businesses.

When the Fed sells bonds, it wants to achieve the opposite: slowing the economy to suppress inflation as interest rates rise.

Through the reduction policy, Powell is looking to slow it all down a bit by recouping the trillions of dollars in bond purchases the Fed has made since the start of the pandemic. If Powell doesn’t blink, the Fed will go from at least $ 120 billion in bonds a month to zero next year.

But Powell’s plans to protect the middle class clash with the Democratic Party’s plans to rebuild the economy through massive social spending. Warren, Bernie Sanders, AOC and the lefties who set Biden’s economic agenda know that the $ 5,000 billion in spending they demand is not “paid” unless the Fed helps foot the bill.

Of course, there are those on Wall Street who say Biden won’t risk the possible market uproar that could accompany Powell’s replacement. Investors could lose faith in the US financial system and sell US stocks, US bonds and just about everything.

Maybe the Democrats’ spending plans are shattered by the two Democratic refractories, the senses Joe Manchin and Kyrsten Sinema, and Powell can have his cone.

There are others – and their numbers are increasing – who believe that Manchin and Sinema will largely give in to their party’s demands. Biden, between the licks of those ice cream cones, will be intimidated by lefties to replace or at least defenestate Powell. Ta-ta with the cone.