Fed Watch: Powell More Pessimistic On Inflation As Senate Confirms Second Term

Four more years. The Senate voted 80-19 last week to confirm Jerome Powell for a as chairman of the Federal Reserve last week, in a bipartisan vote that was largely expected.

So, a middling member of the board of governors who became sort of an accidental chairman after then-President Donald Trump misunderstood his intentions on raising interest rates, has now been duly renominated and Senate confirmed to continue listening to Fed economists and following their models.

People give Powell a lot of credit for following the playbook of his predecessor, Ben Bernanke, when faced with the challenge of the COVID-19 pandemic — print money like crazy and hope for the best.

It worked, except we now have, perhaps due to an excessive amount of money creation.

Anyway, the newly confirmed Fed chairman last week said some interesting things in an interview with Marketplace’s Kai Ryssdal. The headline grabber:

“The question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control.”

Interesting because for months Powell has insisted that the Fed has the “tools” to control inflation. Sadly, apparently not enough tools. Perhaps the Fed should have acted sooner?

“If you had perfect hindsight you’d go back and it probably would have been better for us to have raised rates a little sooner.”

Yes, perhaps, instead of labeling inflation as transitory and not acting as every sensible central bank reacts when inflation rears its ugly head.

Blackberries:

“The process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels.”

Those 19 senators voting against confirmation consisted of Republicans who weren’t happy with Powell’s performance on inflation, but also a sprinkling of progressive Democrats like Elizabeth Warren who objected to him for not doing enough on other things, like bank regulation or climate risk. History will tell us which ones made a good choice.

US, European Central Banks Undergo Changing Of The Guard

The Dallas Fed has named the high-powered vice president of the New York Fed, Lorie Logan, to succeed Robert Kaplan as head of the regional bank. Logan most recently has been in charge of managing the Fed’s $ 9 trillion in assets as manager of the System Open Market Account.

A Fed veteran who has worked with the central bank since 1999, Logan will become a voting member of the Federal Open Market Committee next year when Dallas takes its turn as one of the four regional banks allowed a vote. Voting or not, she will be a strong voice on the policymaking panel.

The Senate has also confirmed Philip Jefferson and Lisa Cook to the Fed board of governors, and the Boston Fed has named Susan M. Collins as its president to succeed Eric Rosengren as the first black woman to head a Fed regional bank as the Fed continues to diversify its leadership.

At the European Central Bank, hawks and doves are lining up on the ECB governing council to decide whether to raise interest rates in July, after it has terminated its asset purchase program.

The council consists of an unwieldy 25 members, as each of the 19 national central bank governors belongs, as well as the six members of the executive board.

Before the euro and the ECB, Germany’s conservative central bank, the Bundesbank, largely determined European monetary policy because other countries in the European Monetary System had to follow Germany’s lead.

Now, the head of the Bundesbank, Joachim Nagel, only gets one vote on the council, the same as the representatives from Cyprus or Malta — and doesn’t even get to vote at every meeting because of the ECB’s rotation system.

Nagel, who took office in January, has become leader of the hawk faction on the council, but the French president of the ECB, Christine Lagarde, lines up with the doves, as does the chief economist, Ireland’s Philip Lane.

Europe is in a different situation than the US, with an economy much more vulnerable to repercussions of the Ukraine war, even though Europe also faces surging inflation.

There is room for debate on the issue, but it is hardly a coincidence that the hawks come fiscally strict from northern Europe and doves come from debt-prone southern Europe.

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