The editors of the Washington Post rush to the defense of Fed Chairman Jerome Powell against the verbal assaults of Massachusetts Sen. Elizabeth Warren:
Ms. Warren’s critique centered on Mr. Powell’s oversight of banks. She charged that the chair has overseen deregulation that makes another 2008-style financial crisis more likely — weakening “stress tests†that banks must undergo to prove they can cope with a downturn, for example. Without urgent federal aid, Ms. Warren pointed out, big banks would have lost $300 billion when the economy turned south last year, challenging their balance sheets.
Mr. Powell responded that the banks could have endured those losses “without difficulty,†and that is in part because of the stress tests Ms. Warren argued are deficient. The chair also expressed willingness to revisit the decisions about which Ms. Warren complained. The Fed has far more tools now than it did before 2008 to police the financial system. To be sure, Mr. Powell has not used them as aggressively as Ms. Warren would prefer. But former senator Christopher J. Dodd (D-Conn.) and former representative Barney Frank (D-Mass.), the authors of the landmark Dodd-Frank financial regulation law, wrote two weeks ago that “these were not major attacks on the legislation, and nothing in Powell’s performance contradicts his assertion that he supports the basic framework we put in place.â€
Clearly, there is a difference of perception here. Sen. Warren sees her job as to bully and harass banks while Mr. Powell sees it as his job to assuage and mollify them. I will leave it as an exercise for the interested student to decide why both of those may be the case.
My own view is that Mr. Powell has been a lousy Fed Chairman, the latest in a series of lousy holders of that position going back decades. Yes, regulating banks is his job. It’s also his job to keep prices stable and maximize employment. In the immortal words of Dr. Phil, how’s that working out for you? QE has been tried and found wanting but it’s been remarkably successful in producing tremendous wealth inequality in the U. S. Banks aren’t failing at the rate they did 13 years ago but they remain on life support. We’re experiencing the highest inflation in a generation and a reduced level of employment participation.
Under Powell and Trump we did see major unemployment but I am not entirely sure the semiconductor shortage can be blamed on him.
Is there anything in either the bond markets or stock market to suggest they are overly worried about inflation?
Steve