AS WE SEE FROM THE ABOVE, THE FEDERAL RESERVE HAS A COWARDLY FEAR OF POLITICIANS ...thelivyjr wrote: ↑Mon Jul 15, 2019 1:40 p MARKETWATCH
"Opinion: Trump and the stock market are spooking Powell into making this rookie mistake"
By Rex Nutting
Published: July 10, 2019
By all accounts, the U.S. economy is growing robustly, with very low unemployment and very low inflation.
The Dow Jones Industrial Average and S&P 500 index are near record levels and interest rates are extremely low.
It’s what they used to call a Goldilocks economy, with nothing too hot or too cold and everything just right.
So, of course, the Federal Reserve is going to cut short-term interest rates in three weeks as insurance against the possibility — however remote — that the economy might soon collapse because of slowing global growth, in part attributable to Donald Trump’s trade war.
It’s a rookie mistake by Fed Chair Jerome Powell, who’s been bullied by President Trump and financial markets into pumping more liquidity into an economy that already has plenty.
And don’t think for a second that Powell’s tormentors will be satisfied with just one quarter-point cut.
Goodbye data dependence
Instead of maintaining a data-dependent stance that would let the evolving state of the economy inform their decisions, the Fed has opted to fly by the seat of its pants, to let gut feelings dominate reason.
Instead of the Fed taking away the punch bowl so the party doesn’t get out of hand, Powell is volunteering to go on a run to the store even though the liquor cabinet is fully stocked.
It’s happy hour at the Powell Put Saloon.
If lack of confidence in the future is the problem, it does no good to see the Federal Reserve in full panic mode.
If trade wars are what’s causing the uncertainty, the only solution is to resolve that uncertainty, not paper over it with cheap money.
Neither the price of credit nor the access to credit is restraining the economy, so how does a rate cut help?
The closest parallel to this upcoming rate cut are the emergency cuts in 1998, when the Russians were defaulting and the Long-Term Capital Management fund collapsed.
But the issue then wasn’t uncertainty per se, but actual lack of liquidity.
Fed Chairman Alan Greenspan responded with a fire hose of liquidity that, traders should remember, fueled the final ascent of the Nasdaq bubble.
Today, as then, the economy is growing above trend.
But there are no liquidity concerns now.
Binary future
What’s troubling business leaders is a binary future: One with relatively free trade around the globe, and the other with protectionist walls everywhere.
That issue will not be resolved by the Fed, but by Trump, the Chinese and other global leaders.
Cutting rates doesn’t help that process.
A rate cut at this point only emboldens Trump and those leaders to adopt even harder lines.
They know Powell has their back if they create even more uncertainty.
What’s more, the economic outlook has brightened since the June meeting.
The global headwinds receded slightly with the tariff truce at the G-20 summit.
The tail risk of a U.S. recession also lessened, with a rebound in hiring, better capital spending numbers, a brighter outlook for consumer spending, and a rebound in trade flows reflecting strong domestic demand, which seems to have rebounded nicely in the second quarter.
One can well imagine that, in a parallel universe, Powell was telling Congress on Wednesday that the outlook had improved since June and that a rate cut at the end of the month was unlikely.
That testimony fits the facts just as well.
Wait and see
Recall that Fed officials at their June meeting concluded, nearly unanimously, that no rate cuts were necessary.
A slight majority of the Federal Open Market Committee participants (those who vote this year as well as those who will rotate into voting positions) thought no rate cuts would be necessary this year.
Fed officials were in agreement in June that the economy would likely continue to grow above its long-term trend through the end of 2020, that the unemployment rate would remain below its long-term level for the foreseeable future, and that inflation would be near to their 2% target.
Not one member thought growth would go below 1.5%.
Not one thought unemployment would go above 4%.
Not one thought inflation would drift further away from the target.
Since then, few Fed officials have argued forcefully for rate cuts.
Even dovish James Bullard spoke out against an aggressive 50 basis-point move.
None of the board governors have been beating the drums for a cut.
Among the regional bank presidents, at least half have argued for a continuation of the wait-and-see policy.
All that said, Powell will deliver the rate cut demanded by Trump and the markets.
But it will only be by bullying policy makers such as Randal Quarles, Richard Clarida, Lael Brainard and John Williams — none of which have spoken about policy recently but are assumed will support Powell — into going against their better judgment that the Fed should hold its fire and see which way the U.S. economy evolves.
https://www.marketwatch.com/story/trump ... 2019-07-10
REUTERS
"Fed chair nominee Warsh will have ideas, economy may deliver surprises, Daly says"
By Ann Saphir
April 17, 2026
Summary
* All Fed chairs face economic surprises, Daly says
* Daly in wait-and-see mode on rates since Iran war
* Daly says Fed-Treasury relationship has changed over time, sees no danger in evolution
April 17 (Reuters) - Kevin Warsh may have plans for big changes at the U.S. central bank, but like previous Federal Reserve leaders cannot know what economic surprises he may need to deal with once he is in the role, San Francisco Fed President Mary Daly said on Friday.
"He'll come in with an idea of what he would like to think about and do," Daly told an advisory board to UC Berkeley’s Fisher Center for Real Estate & Urban Economics.
"And then the economy will deliver what we actually work on, and that will be the journey of every Fed chair and all the Fed policymakers and all the Fed employees."
As U.S. President Donald Trump's pick to succeed Fed Chair Jerome Powell, Warsh has indicated support for cutting interest rates as Trump wishes.
WAR RAISES INFLATION CONCERNS
Since the Iran war began, however, even the Fed's most dovish policymaker, Fed Governor Stephen Miran, has become less so in the face of high oil prices and signs that underlying inflation may be trending upward again.
Daly on Friday said that before the Iran war she had thought one or two interest-rate cuts might be needed this year, but she is now in "wait-and-see" mode as she monitors how long the conflict lasts and oil prices stay elevated.
A top researcher at the San Francisco Fed during the 2007-2009 financial crisis, when Warsh was Fed governor, Daly expressed confidence that as Fed chair, Warsh would "serve the American people" and strive to deliver the Fed's congressionally mandated goals of price stability and full employment.
"I know him well enough to (know) he will absolutely hold to those responsibilities of the job," she said.
At the same time, she said, no Fed chair can know ahead of time what kind of economy they will be dealing with once they take the job.
Fed Chair Alan Greenspan, she noted, faced a productivity shock that allowed the economy to grow faster without generating price pressures that would require the Fed to raise rates.
Fed Chair Ben Bernanke dealt with a financial crisis that required the central bank to slash rates to avert a deflationary spiral.
"You work with the economy you have, and you plan for the economy that we're supposed to achieve, and that's always been our work, and I think it always will be," said Daly.
WARSH SEEKING COORDINATION WITH TREASURY
Warsh says he wants "regime change" at the central bank and has called for more coordination with the U.S. Treasury Department, particularly over the size of the Fed's balance sheet.
He testifies at a Senate Banking Committee confirmation hearing next Tuesday.
Trump administration officials have expressed confidence he will be at the Fed's helm by May 15, when Powell's leadership term ends, though Republican Senator Thom Tillis has promised to block his confirmation until the Department of Justice ends an investigation into Powell that Tillis -- and Powell himself -- see as a threat to the Fed's independence.
The Fed needs to conduct monetary policy independently of politics, Daly said, so it can keep economic conditions stable and so businesses and households can plan even through a change in administration.
At the same time, good communication between the nation's policymakers is a positive thing, Daly said.
The Fed's relationship with Treasury has varied over time, she said, with increased coordination during crises.
"They are also issuing a lot of Treasury securities, and so being connected to them is important," Daly said, of the Fed's relationship with the Treasury Department.
"I will leave it to Kevin Warsh when he comes and other policymakers as they decide what we will exactly do, but I think evolution is in itself not dangerous."
Reporting by Ann Saphir, Editing by Franklin Paul and Rod Nickel
https://www.reuters.com/business/warsh- ... 026-04-17/