Early Monday evening, we noted that Jerome Powell finds himself in a decidedly unenviable position just one year into his tenure as Fed Chair.
Jay is caught between, on one hand, a desire to proceed apace with policy normalization and guard against the risk of an overheat engineered by a president hell-bent on juicing the economy with debt-funded stimulus, and, on the other, the necessity of avoiding a dangerous overtightening that could prompt a destabilizing unwind in emerging market economies and/or exacerbate the burgeoning slowdown across developed markets.
Trump has made this balancing act immeasurably harder on Powell by publicly criticizing the Fed, going so far as to call the central bank “loco” on the way to characterizing the FOMC as “the biggest threat” to his administration.
In December, rumors that Trump might attempt to fire Powell made a bad situation for markets worse as the world was suddenly forced to ponder the rather surreal prospect of a reality TV show host commandeering US monetary policy, Erdogan-style.
Amid dire warnings from all corners, Trump ultimately came to his senses (or else figured out that moving against Powell might well be the death blow for a market that was already on its way to the worst December since the Great Depression). On December 26, the administration made it clear that Powell’s job was safe.
But that didn’t stop Trump from seeking to arrange a meeting with his Fed chief. We were hardly the only ones to suggest that it would be a terrible idea for Powell to agree to a sit down with Trump, especially if they were the only two people in the room.
Well, according to the Fed itself, Powell had dinner with Trump on Monday night. Amusingly, he brought Clarida along, presumably to make sure someone else was there in case things went off the rails. Mnuchin was there too. Here’s the statement from the Fed:
At the President’s invitation, Chair Powell and Vice Chair Clarida joined the President and the Treasury Secretary for an informal dinner tonight in the White House residence, to discuss recent economic developments and the outlook for growth, employment and inflation.
Chair Powell’s comments in this setting were consistent with his remarks at his press conference of last week. He did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook.
Finally, Chair Powell said that he and his colleagues on the FOMC will set monetary policy in order to support maximum employment and stable prices and will make those decisions based solely on careful, objective and non-political analysis.
That may or may not be an accurate description of how this “informal” dinner in fact played out, but what we would gently suggest is that it doubtlessly went better than it would have gone just a month ago. That is, now that Powell has done what Trump (and the market) wanted him to do, sparking a furious rally in stocks and other risk assets in the process, Trump was probably far less irritated when the four men sat down to dine.
The public will probably never get a full account of this meeting, but we would reiterate what we said in December about it generally being a bad idea for Powell to entertain these requests. To wit, from a post published on December 27:
Thanks to his penchant for shrieking on Twitter about what he wants from the Fed, lawmakers and the public can’t possibly be expected to believe that he (Trump) wouldn’t push the same agenda in a private meeting with Powell.
Given that, any dovish lean from the Fed following such a meeting would be immediately criticized as having stemmed directly from Powell’s conversation with Trump. In other words, to the extent Trump’s tweets have already made it more difficult for Powell to lean dovish, a sit-down with the President would only make things worse.
One imagines it’s not a coincidence that this dinner came after the January Fed decision. Now, nobody can claim that the Fed’s decisively dovish pivot was the direct result of Trump threatening someone with a fork between bites of well done NY strip smothered in ketchup.
According to Bloomberg, Monday’s dinner featured steak and “the meal lasted 1-1/2 hours.”
Powell and Clarida must have been really disappointed they weren’t greeted with Filet-O-Fishes and pizza…