Don’t Expect Blaming the Fed to Help Biden

While I agree with Christopher Leonard’s point in his New York Times op-ed that the Federal Reserve should have started raising interest rates long before it did:

It started back in 2010, when the Fed embarked on the unprecedented and experimental path of using its power to create money as a primary engine of American economic growth. To put it simply, the Fed created years of super-easy money, with short-term interest rates held near zero while it pumped trillions of dollars into the banking system. One way to understand the scale of these programs is to measure the size of the Fed’s balance sheet. The balance sheet was about $900 billion in mid-2008, before the financial market crash. It rose to $4.5 trillion in 2015 and is just short of $9 trillion today.

All of this easy money had a distinct impact on our financial system — it incentivized investors to push their money into ever riskier bets. Wall Street-types coined a term for this effect: “search for yield.” What that means is the Fed pushed a lot of money into a system that was searching for assets to buy that might, in return, provide a decent profit, or yield. So money poured into relatively risky assets like technology stocks, corporate junk debt, commercial real estate bonds, and even cryptocurrencies and nonfungible tokens, known as NFTs. This drove the prices of those risky assets higher, drawing in yet more investment.

The Fed has steadily inflated stock prices over the last decade by keeping interest rates extremely low and buying up bonds — through a program called quantitative easing — which has the effect of pushing new cash into asset markets and driving up prices. The Fed then supercharged those stock prices after the pandemic meltdown of 2020 by pumping trillions into the banking system. It was the Fed that primarily dropped the ball on addressing inflation in 2021, missing the opportunity to act quickly and effectively as the Fed chairman, Jerome Powell, reassured the public that inflation was likely to be merely transitory even as it gained steam. And it’s the Fed that is playing a frantic game of financial catch-up, hiking rates quickly and precipitating a wrenching market correction.

but if he thinks that giving Americans a more realistic understanding of what’s been going on over the last dozen years will either exculpate President Biden or help him politically I’m afraid he’s going to be bitterly disappointed. Jerome Powell was appointed to the Federal Reserve Board of Governors by President Obama. Joe Biden was Obama’s vice president. True, Donald Trump elevated Mr. Powell to chairman. And Joe Biden appointed Powell to a second term as Fed chairman.

So, while there’s plenty of blame to go around no one forced Joe Biden to re-appoint Powell. And presidents always get blamed for developments during their terms of office whether they are directly related to their actions as president or not and today’s high inflation is directly related to the consumption subsidies enacted in 2021.

It may be a coincidence but the RCP Average of polls shows President Biden’s “spread”, the difference between his approval rating and his disapproval rating, to be -15.5, the greatest of his presidency. He has no fallen through his previous approval floor of 40% to 39%. And, as I have pointed out, “doing something”, e.g. making public appearances actually hurts Joe Biden’s approval rating. Maybe it will stabilize before the midterms.