One has to wonder if it has at last dawned on Jay Powell that he can’t win, that no matter what he does, and no matter how successful it is, he will be the recipient of a hurricane of sh*t, no matter where he is or how far up a mountain he climbs. Because he tried that today, announcing at his much-anticipated Jackson Hole, Wyo., speech that he and his band of not-so-merry central bankers “will act as appropriate to sustain the expansion.” Since the only way the Fed can so act is by further lowing interest rates, he might expect—as he might have in the past—that this would mollify the president. Unfortunately, Powell’s congenital foot-in-mouth disease required him to mention the ever-escalating trade war with China, and its possible detrimental effects on the economy. This implied criticism had the effect predictable to anyone not named Jay Powell.
Ideas that have been discussed include imposing a currency transaction tax that could weaken the dollar and make U.S. exports more competitive; creating a rotation among the Federal Reserve governors that would make it easier to check the power of Chair Jerome H. Powell, whom Trump has blamed for not doing all he can to increase growth; and pushing to lower the corporate tax rate to 15 percent in an effort to spur more investment. Some, if not all, of these steps would require congressional approval.
Oh yea, tax cuts are back on the table for the second time this week, and if Powell’s thinking he can head that off or otherwise appease the unappeasable with a rate cut next time out, he might find a rock opposite the bloated orange hard place.
St. Louis Fed leader James Bullard again expressed support for lowering short-term rates in a CNBC interview Friday, but he also said the U.S. central bank could reverse that course of action depending on how the economy performs. Cleveland Fed leader Loretta Mester said that if the economy continues on its current path she would be unlikely to support a rate cut.
“My sense was we’ve added accommodation, and it wasn’t required in my view,” Kansas City Fed leader Esther George said. “In my view with this very low unemployment rate, with wages rising, with the inflation rate staying close to the Fed’s target, I think we’re in a good place relative to the mandates that we are asked to achieve….”
Patrick Harker of the Philadelphia Fed also pushed back against the need for lower rates on CNBC. “We’re roughly where neutral is” for monetary policy, he said. “I think we should stay here for a while and see how things play out,” he said on the channel.
Way to be a good host, Esther. Is anyone else taking a few whacks at the Fed chair punching bag? Why yes, most of Wall Street would like to reiterate just how very annoying they find Powell’s unwillingness or inability to be inscrutable.
The survey, conducted July 17-22, found that 15 of 24 banks rated Fed communications as “ineffective” or close to that level, compared with eight who rated the communications effectiveness at the midpoint between ineffective and effective…. “Several dealers indicated that they found communication confusing, and several characterized communication from various Fed officials as inconsistent,” the New York Fed report said.
Powell Issues Warning Over Trade, Signals More Rate Cuts Are Possible [WSJ]
The month a shadow fell on Trump’s economy [WaPo]
Trump Demands American Companies to ‘Start Looking for an Alternative to China’ [NYT]
Larry Kudlow says there could be a tax cut before Election Day [CNBC]
In TV Interviews, Two Fed Officials Split on Need for Rate Cuts [WSJ]
Three Fed Officials Offer Diverging Views on Rate Cuts in TV Interviews [WSJ]
Big Banks Struggled With Fed Communications Ahead of July FOMC [WSJ]