Tag: Federal Reserve

Inflation is here. After a 40-year hiatus, we’re now in the midst of the phenomena characterized by rising prices and declining purchasing power. Many had warned about it, but it became inevitable in the wake of the pandemic with the passage of the $2 trillion American Rescue Plan. Did policymakers and economists anticipate the danger of inflation from massive fiscal stimulus, only to have their advice ignored? Or were they complacent? To answer these questions and more, Harvard economist and Pioneer Institute board member Ed Glaeser recently interviewed Larry Summers, former U.S. Treasury Secretary and former President of Harvard University, for a special episode of Hubwonk.


Join Jim and Greg as they welcome the news that badly outspent GOP candidates are getting an infusion of $160 million from Mitch McConnell’s Super PAC for the final push to November. They also shudder as Fed Chairman Jerome Powell says he will be acting aggressively to rein in inflation but that many people will feel “pain” in the meantime. And they hammer the FBI after Facebook Founder Mark Zuckerberg tells Joe Rogan how the Bureau told Facebook to be on the lookout to confront expected Russian disinformation. That led Facebook to limit the reach of posts related to the Hunter Biden laptop story.

Kentucky Rep. Andy Barr, a prominent Republican on the House Financial Services Committee, joins “Plugged In” host and former FERC Chairman Neil Chatterjee to talk more about what he sees as a failed attempt by the Biden administration to regulate climate change.

He explains the intended role of financial regulators and why he says free enterprise is healthier for the economy than central planning and “woke” policies that discriminate against innovation in the fossil fuel industry.

Jack ends the year with young econ expert Dominic Pino to make sense of the supply-chain and inflation crises that have beset America in 2021 and to try to ascertain whether they’ll stick with us in 2022.

Jim and Greg serve up all good martinis today! First, they welcome the warning from former Clinton administration Treasury Sec. Larry Summers that the Fed needs to focus on fighting inflation instead of getting involved in “woke” issues. They also enjoy seeing Maine Dem Rep. Jared Golden announce that he is opposed to the reconciliation bill, leaving Nancy Pelosi with a very narrow margin. And they’re happy to see Sen. Joe Manchin state that is opposed to the IRS getting access to our bank account transactions at any threshold without a very good reason.


Why Wars on the Fed Aren’t Good or Easy to Win


President Donald Trump and chairman of the US Federal Reserve Jerome Powell.

It’s not unreasonable to criticize Fed policymaking. Except maybe if you’re the American president. There’s good reason it’s considered exceedingly bad form and poor governance to do what Donald Trump is doing right now in his escalating critique of the Powell Fed, first on CNBC and then via Twitter. If you value economic stability, then you probably don’t want the president using political pressure to influence the US central bank. It can get really ugly.

Presidents Disagreeing with the Fed is Nothing New


President Trump, in his usual way of speaking, told Joe Kernan of CNBC that he doesn’t necessarily agree with the Federal Reserve’s raising of interest rates. This act, known alternatively as “moral suasion” or “jawboning,” has actually been happening for a while. Economic adviser Larry Kudlow did almost the same thing on Fox News three weeks ago.

Criticism has been coming in from many quarters, not all from the usual sources. Keith Hennessey, formerly of the Bush 43 White House, “disagree[s] with President Trump on every aspect of this.” Most of the claims are that this breaks from a long-standing tradition. But for how long? Pres. George H. W. Bush blamed Fed chair Alan Greenspan for his electoral loss in 1992, a theme that his administration began as early as 1989. President Ronald Reagan in 1981 told a group of supporters, “The Fed is independent, but they’re hurting us.” Perhaps the most famous act, done more privately, was when LBJ shoved then Fed chair William McChesney Martin around a room, shouting at him, “Martin, my boys are dying in Vietnam, and you won’t print the money I need.”

This reticence of presidents to talk about the Fed, then, is fairly recent history, started by Bill Clinton’s Treasury secretaries Robert Rubin and Larry Summers. Greenspan having enough credibility to be called a maestro probably stayed the hand of Bush 43’s staff (you might argue they needed to jawbone rates higher) and the Obama White House used breakfasts to persuade Bernanke and Yellen in private more than with public statements.

Four of the Dow Jones’ greatest single-day swings occurred in a one-week stretch in February. Was it an aberration, or the new normal in the Trump economy? John Cochrane, the Hoover Institution’s Jack and Rose-Marie Anderson Senior Fellow and purveyor of The Grumpy Economist blog, assesses the health of the financial markets and other economic bellwethers worth watching.

The state of the US economy in two words: “getting better.” That’s the learned opinion of John Taylor, the Hoover Institution’s George P. Shultz Senior Fellow in Economics and the Mary and Robert Raymond Professor of Economics at Stanford University. He forecasts continued growth thanks to the latest round of tax cuts and regulatory reform – and wishes Washington would address another of his proscribed principles of economic well-being: budget reform.

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The notion that the Federal Reserve can enhance the growth of the economy is unsupported by any empirical evidence.  The fallacy in the Fed’s thinking becomes clear when one recognizes that in prosperity, it credits the wise planning of regulators who supposedly guided us to wealth, yet in crisis insists even the best efforts of […]

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In this AEI Events Podcast, Jay Powell of the Board of Governors of the Federal Reserve System joins AEI’s Stephen D. Oliner to discuss the critical need to reform the housing finance system. During his remarks, Governor Powell emphasizes the potential systemic risk from a housing finance system that continues to be dominated by two large institutions, Fannie Mae and Freddie Mac, both of which remain in conservatorship today.

He also identifies a set of principles that should guide reform efforts, without favoring one specific plan over others. Governor Powell concludes by highlighting the need to move forward with the best feasible plan that would draw bipartisan support instead of holding out for the perfect solution.

This Might Be How Trump Picks a Fed Chair


As I wrote yesterday, Donald Trump used to talk about the “highly political” Fed boss Janet Yellen. He has suggested Yellen probably wouldn’t get a second term heading the central bank. No more inflating the “false economy.”

But now this in the WSJ:

Ms. Yellen was a frequent target of Mr. Trump’s during the campaign, when he criticized her for keeping interest rates low. Asked if Ms. Yellen was “toast” when her term ends in 2018, Mr. Trump said, “No, not toast.” “I like her, I respect her,” Mr. Trump said, noting that the two have sat and talked in the Oval Office. “It’s very early.”

5 Reasons the Fed Should Not Raise Interest Rates


I will admit a current bias against monetary tightening and the idea that the US economy is at full employment (though maybe such a state is only a long nine iron away). And although I am not a “high pressure economy” person,  I would take any rate hikes very, very gradually. And if a voting member of the FOMC, I probably would have stayed the course at this week’s Fed meeting. Much like Minneapolis Fed President Neel Kashkari, who explains his dissent — with plenty of chart goodness — in a Medium blog post.

Among his key points: First, prices still seem pretty stable. (“Twelve-month core inflation is at 1.7 percent, and while it seems to be moving up somewhat, it is doing so slowly, if at all.”)

When the White House and the Fed Collide…


I am not a superforecaster. And you really don’t need to be one to have anticipated a potential conflict brewing between monetary policy at the Yellen Fed and fiscal policy from the Trump White House and GOP congress. But I saw this coming (via the New York Times):

For President Trump and his economic advisers, the strong February jobs report was a cause for celebration — and a first step toward delivering on the president’s promise of faster economic growth. For the Federal Reserve, it was the final confirmation that the time had come to raise interest rates to prevent the United States economy from overheating. Mr. Trump and Janet L. Yellen, the Fed’s chairwoman, appear to be headed toward a collision, albeit in slow motion. Mr. Trump has said repeatedly that he is determined to stimulate faster growth while the central bank, for its part, is indicating that it will seek to restrain any acceleration in economic activity.

So what happens when the Fed chair and the US president see things differently? Or what set of circumstances previously led the Fed to badly fall behind the tightening curve? A new Goldman Sachs research note highlights “a cautionary tale from US monetary history” recently told by Richmond Fed President Jeffrey Lacker. GS:

At Last She Moves, But How Many More?


yellenJanet Yellen and the Federal Reserve made next to no news at all with the announcement to move the Federal funds rate to the 0.5-0.75% range.  They had very well hinted at this in their meeting just before the election. The Federal Open Market Committee’s statement announcing the change showed very little change in its description of economic conditions — it changed the adjective describing growth from “modest” to “moderate.” As Bob Eisenbeis pointed out a few hours before the decision, the change does not seem to connect to actual economic conditions, so chances are they changed the word in order to justify what they’d already committed to doing. And as I said in my most recent post on Fed policy, they were committed to this move.

The Fed prefers to move when they have a press conference to explain themselves, and today was no exception. Because the Fed changed slightly its outlook for 2017, wherein it looks like the median of the Fed is to make three more increases in the Fed funds rate (to 1.25-1.5% by a year from now) from the two it forecast in September, Ms. Yellen had to explain that it was just a few people who moved. It’s also worth noting that the FOMC membership changes before the next meeting, as it does every year with the rotation of Fed presidents from the 12 regions. The next group coming in is known to have views that are more dovish (easier money) than the group about to depart. Listening to the press conference, I thought Yellen was trying very hard to tell us not to get hung up on three. Perhaps it’s because she is in the two-increase camp.

I thought the press conference attendees did a good job pressing Ms. Yellen on some points. On the Trump presidency, there was a silly question about Twitter. She waved this off with reference to the Fed’s independence — what else could she say? But the more interesting questions concerned fiscal policy and whether the Fed would take a non-accommodative stance in response to easing. There’s been much chatter in the econ and finance blogs about this and it’s mostly rubbish. On expansionary fiscal policy, ever the Keynesian, Ms. Yellen said we needed fiscal stimulus a few years ago when demand was slack, but not so much now. But when pressed on this by two different reporters, she did relent that fiscal policy which improved productivity would be welcome, would encourage real growth, and would allow interest rates to rise without choking off an expansion.

On Fiscal Stimulus, Yellen Is “Meh,” While Trump Is “More!”


yellen-trumpThere seems to be an economic disagreement between the current Fed and the future White House. The central bank on Wednesday raised its benchmark short-term interest rate for the first time in a year, with perhaps three more moves in 2017. And at the post-meeting press conference, Fed boss Janet Yellen was kinda-sorta “meh” on the idea that the US economy needed a big dose of fiscal stimulus. It probably did a bit earlier in the recovery, but not now.

Here’s Yellen:

I believe my predecessor and I called for fiscal stimulus when the unemployment rate was substantially higher than it is now. With a 4.6% unemployment and a solid labor market, there may be some additional slack in labor markets but I would judge that the degree of slack has diminished. I would say at this point that fiscal policy is not obviously needed to provide stimulus to get back to full employment.

The Real Reason the US Economy Seems Stuck in Slow-growth Mode



What to make of the above chart? Its creator, Congress’ Joint Economic Committee, offers an opinion on what it calls the “new normal” or persistent economic stagnation:

The United States is in the midst of the most lackluster economic recovery in modern American history. Eight years of economic stagnation has cost the median American family a cumulative $69,000 of income. In addition, effective tax rates on American businesses remain among the most burdensome in the world, and the Obama Administration continues to increase regulations at a record pace. Furthermore, the Administration’s Keynesian approach to economic stimulus has failed to promote strong, sustainable economic growth….

The Fed Waits, Impatiently


Janet Yellen.

The Federal Reserve meeting ending today has been discussed, chewed on, and predicted by just about everyone with any knowledge of the identity of Ben Bernanke or Janet Yellen. Let’s dissect the run-up, and see what they did.

New Federal Reserve Paradigm


US equity indexes staged a sharp positive reversal since last Thursday morning following the tragic murder of British MP Jo Cox, subsequent currency market moves, and polling indicating Brexit is less likely.

Financial markets abhor uncertainty and there are few things more uncertain right now than the fate the Brexit referendum so it is intuitive that polling favoring the status quo supports higher equity prices. However, there are other forces at work that may prove much more volatile to US markets than the potential outcomes of the Brexit referendum.

Overthrow the Establishment to Fix the Economy


Wilbur Ross.

Famed investor Wilbur Ross recently told CNBC that “Trump represents a more radical new approach to government that the nation’s economy desperately needs.” He’s right. Trump seeks an overthrow of the establishment. He’s a disrupter. Just what we need to fix the economy.