When is Powell testimony?
Powell will testify to the House Financial Services Committee at noon on Wednesday and on Thursday, he will appear before the Senate Banking Committee at 9:30 a.m. Eastern. MarketWatchPowell will stress patience in Capitol Hill testimony this week
An economic rebound, rising wages and declining unemployment claims weren't enough to spare Federal Reserve Chairman Jerome Powell on Thursday from gripes in the Senate.
During testimony before the Senate Banking Committee, Democrats grilled Powell over the central bank's support for climate change initiatives and its rollback of financial protections, while Republicans questioned Powell on his commitment to controlling inflation.
"Big banks rake in cash – and they spend it on executive compensation and dividends and buybacks, instead of lending in communities or increasing capital to reduce risk," said committee chairman Sen. Sherrod Brown, D-Ohio. "The Fed should be fighting this trend, protecting our progress from Wall Street greed and recklessness – not making it worse."
Ranking Member Sen. Pat Toomey, R-Pa., offered criticism for what he views as the Fed's inaction on inflation.
"The Fed's policy is especially troubling because the warning siren for problematic inflation is getting louder. Inflation is here, and it's more severe than most — including the Fed itself — expected," he said. "Since the Fed has proven unable to forecast the level of inflation, why should we be confident that the Fed can forecast the duration of inflation?"
The barbs from both sides of the aisle may feel unfamiliar to Powell, who has otherwise received praise from lawmakers for acting quickly to flush the U.S. economy with cash as the Covid-19 pandemic forced thousands of businesses to close.
The recent criticism of the Fed and its leader may have less to do with economics and more to do with political posturing. With members of both parties seeking an early edge in the key 2022 midterm elections, Powell may find himself with fewer public allies in Congress.
House Financial Services Committee Ranking Member Patrick McHenry, R-N.C., proved a notable exception on Wednesday, when he supported Powell's candidacy for a second term.
"You have earned and deserved another term as chair of the Federal Reserve," he told Powell. "You have proven to be a steady hand throughout this pandemic or ongoing recovery."
Progressive Democrats may hope to open an avenue for President Joe Biden to nominate a Democrat to lead the central bank.
Brown and other members of his caucus have pushed Powell to compel lenders to address climate change, reduce income inequality between executives and their employees, and bulk up capital requirements for the nation's largest banks.
Some, such as Massachusetts progressive Democrat Sen. Elizabeth Warren, argue that the Fed should be led by a chair who proactively seeks to strengthen Wall Street oversight. Those hoping for a Democratic central bank chair have said that Fed Governor Lael Brainard is an excellent option for Biden.
"What I'm looking for is that the Fed's record over the past four years is one move after another to weaken regulation over Wall Street banks," Warren told Powell on Thursday.
"There's no doubt that the banks are stronger today than they were when they crashed the economy in 2008," she added. "But that's the wrong standard: The question is whether or not they are strong enough to withstand the next crisis and whether the Fed is tough enough to protect the American economy and the American taxpayer."
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A congressional staffer on one of the relevant committees told CNBC that such criticism should be taken in context, and that the Fed often becomes an easy punching bag for politicians hoping to win reelection with promises of economic reform.
Still, the staffer said that Powell's handling of the coronavirus crisis has proven his worth and offers Biden a compelling case to keep him around for a second term.
The Fed is "an easy target for when things aren't going perfectly or when the economy isn't booming. It's really easy to turn to the Fed and say, 'What are you doing to fix this?'" the staffer said.
The staffer added that lawmakers are grateful for the Fed's leadership throughout the pandemic and that Powell remains well liked by members of both parties on Capitol Hill.
Powell spent much of his time before the House and Senate answering questions about the central bank's inflation outlook and its plans for its easy monetary policies.
He began his semiannual testimony on Wednesday by saying the Fed is still a ways off from adjusting its monthly billion-dollar purchases of Treasury bonds and mortgage-backed securities, and currently has no plans to edit interest rates.
He seemed to balance that somewhat on Thursday, when he acknowledged to the Senate that "inflation is well above target."
Ultimately, the pace of inflation and employment gains will determine when Powell and his colleagues shift the Fed's monetary stance. Markets tend to gyrate when the Fed telegraphs intentions to tighten monetary policy, so the timing of any potential tapering or interest rate hikes could play a decisive role come November 2022.
"We've said that we would begin to reduce our asset purchases when we feel that the economy has achieved substantial further progress measured from last December," Powell said Thursday. "We're in active consideration of that now."
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16 July, 2021 - 04:10am
What’s more: It could get worse.
Democrats have giddily announced their plan to spend $3.5 trillion on “infrastructure,” notwithstanding fresh reports showing inflation heating up to the highest level since the 1990s.
Even as Democrats plot to rack up bigger budget deficits to build their power base, the Bureau of Labor Statistics provides yet more evidence that inflation is taking hold. The producer price index for June jumped 7.3 percent from a year ago, beating forecasts that have constantly been, like the Federal Reserve, behind the curve.
It’s simple: between the Federal Reserve spewing out more than $4 trillion in cheap money over the past year, and Congress signing off on “relief” packages totaling an unprecedented $3 trillion, there is too much money chasing too few goods.
If Democrats get their way and shove another $3.5 trillion into the mix, inflation will get much, much worse. Already, the out-of-control spending is slamming workers’ paychecks.
Because of rising prices, real wages are falling, even as the job market is tight as a drum. As reported by Bloomberg, “Wage growth rose steadily through the second quarter, but higher consumer prices are taking a toll. Inflation-adjusted average hourly earnings fell 1.7% in June after slumping 2.9% a month earlier…”
Sanders does not seem to care where the money will come from or who it hurts; he has a vision.
Biden has a somewhat weaker vision. He has promised not to raise taxes on anyone making less than $400,000 a year. But rising prices on everyday goods is the worst kind of taxation, hurting low-income earners and seniors on fixed incomes.
Price increases no longer look “transitory,” which has been the ready answer from economists singing in unison with Federal Reserve Chairman Jerome Powell. Rather, inflation appears to be gaining speed and taking hold. A growing number of analysts are now describing the price hikes as entrenched, and likely to endure.
Former Obama administration economist Larry Summers has been one of the more vocal critics of Democrats’ spending spree, warning for months that it could spur higher prices. In response to the new data, Summers is adamant, saying recent reports raise “my degree of concern about an economic overheating scenario. There are huge uncertainties in the outlook, but I do believe the focus of concern right now should be on overheating.”
The latest consumer price report, which like the PPI came in substantially higher than expected, shows prices paid for everyday goods rose 0.9 percent month-to-month in June; economists were expecting 0.5 percent. That’s a big miss, showing the so-called experts remain behind the curve, including the Federal Reserve. Year-over-year, prices were up 5.4 percent, the most since 2008. Core inflation, excluding energy and food prices, rose 4.5 percent from June 2020, the biggest jump since November 1991.
Numerous categories of goods showed robust price hikes. New and used cars, for instance, were up the most ever recorded, while the cost of food advanced 0.8 percent, twice the May increase. Gasoline prices were up 45 percent compared to a year earlier, while rents advanced 3.6 percent.
The Federal Reserve and their compliant chorus have until recently dismissed concerns about inflation, noting that supply bottlenecks and other leftover effects from the shutdown of the government would be resolved shortly, and that inflation would recede towards their 2 percent target over the next year or so.
Many are beginning to reject that happy talk. The price of houses, for instance, is soaring, and inevitably has begun to translate into higher rents. In June, rental prices were up 3.6 percent year-to-year; that category comprises some 40 percent of the CPI. How could the Fed not have foreseen the increase? It’s an increase that will not abate any time soon as we cannot quickly build enough houses to stem rising prices and rents.
June’s CPI report is not the only warning sign that price hikes are accelerating and moving through the economy. Companies are reporting that they are facing wide-spread cost increases and that they are raising prices to maintain margins. Companies from JM Smucker to Chipotle to Black and Decker have announced cost pressures that have led to price hikes. Disney just raised the price of ESPN+ by 17 percent; that has nothing to do with supply chains.
Common sense consumers are way ahead of the Federal Reserve. They see the price of gasoline, houses and pork going up, and are now anticipating inflation of 4.8 percent over the coming year; they will begin to act accordingly.
They are not alone. Almost half of small business managers recently reported to the National Federation of Independent Businesses that they are raising prices. According to the NFIB, “The net percent of owners raising average selling prices increased seven points to a net 47% (seasonally adjusted), the highest reading since January 1981.”
President Biden frequently boasts that his economic plan is working. If skyrocketing inflation and lower real wages are part of that plan, he might want to come up with an alternative.
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16 July, 2021 - 04:10am
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Slatestone Wealth Chief Market Strategist Kenny Polcari, Ladenburg Thalmann Asset Management CEO Phil Blancato and Kaltbaum Capital Management President Gary Kaltbaum on the state of the economy and Fed Chair Jerome Powell's remarks.
Returning to Capitol Hill for a second day of testimony on the economy and monetary policy, Powell – speaking before the Senate Banking Committee – faced scrutiny and skepticism from some Republican lawmakers that the recent burst in consumer prices is fleeting.
"This is a shock going through the system associated with reopening of the economy, and it has driven inflation well above 2%. And of course we’re not comfortable with that," Powell told lawmakers.
Powell has repeatedly blamed pandemic-driven bottlenecks in the supply chain and pent-up consumer demand for the rapid increase in the price of goods and services. The government reported on Tuesday that inflation rose at the fastest pace since 2008 in June, with consumer prices jumping 0.9% from May and 5.4% over the past year.
The Fed chair called the price spike "unique," and reiterated the central bank is closely monitoring to see whether the inflation dissipates, or whether it proves to be longer-lasting.
"The challenge we’re confronting is how to react to this inflation, which is larger than we had expected – or that anybody had expected," Powell said. "And to the extent it is temporary, it wouldn’t be appropriate to react to it. But to the extent it gets longer and longer, we’ll have to reevaluate the risks."
But he drew criticism from Republican lawmakers for the Fed's continued support of the economy, with Sen. Pat Toomey, the ranking member on the Senate Banking Committee, questioning why the central bank had not begun unwinding some of its policies.
"The Fed’s policy is especially troubling because the warning siren for problematic inflation is getting louder," Toomey, R-Pa., said. "Inflation is here, and it’s more severe than most – including the Fed itself – expected."
Powell has stressed that the economy is still "a ways off" from where it needs to be in order for policymakers to begin paring the Fed's purchases of $120 billion a month in bonds, a policy known as "quantitative easing" that's designed to keep credit cheap. The Fed also slashed interest rates to near zero in March 2020; economic projections released by the central bank in June show that most officials expect to keep rates at the current range of 0% to 0.25% until 2023.
Markets have been closing watching Powell for signs the central bank is ready to start scaling back the massive monthly bond purchases. Powell told reporters during the post-meeting press conference that officials had started "talking about talking about" tapering, and minutes from the June meeting showed that officials discussed how and when to begin pumping the brakes.
Wall Street widely expects the Fed to provide more insight into the timing of tapering when central bankers gather in August at their annual retreat in Jackson Hole, Wyoming.
16 July, 2021 - 04:10am
16 July, 2021 - 04:10am