“I think everyone is suffering here but I think those who are least able to bear it are the ones who are losing their jobs”, Jerome Powell said, during a somewhat surreal video press conference that found the Fed chair reading into a camera, newsman style, before taking questions from reporters via webcam.
“It is heartbreaking to see all that threatened right now”, Powell continued.
He was mercilessly ridiculed on social media for, among other things, committing to keeping rates low for the duration of the crisis, discussing the structure of the Fed’s various liquidity facilities (specifically, the Treasury backstop), and attempting to strike an empathetic tone towards the 26 million Americans who have lost their jobs during the last five weeks.
The seven-minute clip above gives you the flavor of the entire proceedings.
Over the course of the virtual press conference, Powell didn’t say much that was particularly contentious. Nothing he said was surprising.
What he did do, though, is state the facts. In the current circumstances, those facts are inconvenient and uncomfortable for some. For others, they are an excuse to feign incredulity and otherwise wax hysterical about “moral hazard”, price discovery, the deficit and, of course, the Fed’s role in harming a nation of would-be savers (and we’ll just forget that Americans aren’t exactly known for being a frugal bunch).
I myself indulged in a bit of humor at Powell’s expense, but only in regard to the somewhat strange spectacle of the Fed chair speaking into a camera lens about a modern day depression with no one else in the room due to quarantine protocol. It was an objectively odd moment.
But others took the opportunity to entertain their fans with the usual cynicism and derision. I’ll only cite examples from commentators who wittingly put themselves “out there”, so to speak, when it comes to the debate.
Powell admitted that the Fed is now into areas where there’s more risk (e.g., buying corporate bonds) and that, the Fed chair said, is ok.
But not for John Hussman, it’s not. “[If the Fed] goes forward and buys uncollateralized corporate debt, in violation of 13(3) and CARES 4003(c)(3)(B), and the public loses money, the Fed would be [spending money not lending money]”, he said, in a shrill series of tweets that included an allusion to putting the entire Fed board in prison. “What color and size jumpsuits do FOMC members want?”, he asked.
Earlier this month, Jeff Gundlach suggested something similar, although he didn’t openly call for anyone to be put in a “jumpsuit’. “The Federal Reserve is presently acting in blatant non-compliance with the Federal Reserve Act of 1913”, Gundlach proclaimed, on April 14. “An institution violating the rules of its own charter is de facto admitting that said institution has failed and is fundamentally broken”. (Narrator: The Fed is not doing anything illegal.)
And then there was former Dallas Fed adviser and author of “Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America”, Danielle DiMartino Booth, who never misses an opportunity to cast aspersions.
Flagging Powell’s remark that “Treasury stands in front of our losses”, Booth was kind enough to offer a “translation”. “Taxpayers will be responsible for recapitalizing any facility that incurs losses”, she said. “Feel better?”
Below, for reference, is a visual that shows the Fed’s various facilities and the Treasury backstop which allows the Fed to lever up. In the simplest possible terms, the orange buffer will absorb first losses.
Booth is correct in her “translation”, of course. But what she doesn’t mention is that some of these facilities will probably turn a profit for taxpayers barring a total meltdown. As Bloomberg reminds you, “similar programs during the global financial crisis of 2007-09 turned a profit”.
I’m not suggesting that each and every one of these facilities will morph into some manner of profit machine for Treasury, I’m simply providing you with a realistic assessment, stripped of the hyperbole.
While I’ve been keen to differentiate between the companion facility for the Paycheck Protection Program and the rest of these emergency facilities (PPP loans are guaranteed by the SBA, and, as detailed here, there’s something absurd about banks funding what amount to grants with the Fed), the fact is, it is far too early for anyone to suggest that these will turn into loss-making vehicles at the expense of the American taxpayer. It is, in my judgement anyway, irresponsible for high-profile individuals to suggest as much on social media.
Booth is a Bloomberg Opinion contributor and an incorrigible Fed critic. She also suggested on Wednesday that perhaps rates shouldn’t be kept low after all. “LONGER FOR…EVER”, she tweeted, in all-caps. “Powell just committed to keep rates at the floor until he’s ‘confident’ the economy has recovered”.
That is correct. Powell committed to keeping rates at the floor until the Fed is confident there’s no longer a depression going on and that measures adopted to avert a viral apocalypse are no longer a threat to the economy. For some, that’s an unreasonable position. I’d be inclined to call it entirely rational. But readers can make up their own minds.
Meanwhile, Peter Schiff is worried about hyperinflation during the single, largest demand shock since the Great Depression.
“Ironically, as the Fed is pursuing the most inflationary monetary policy in its history, Powell was just asked what the Fed will do to prevent a deflationary spiral?”, Peter mused, to the delight of a fan base which has been consuming his maddeningly repetitive content for as long as I can remember.
“The question is will the Fed be able to admit its mistakes and reverse policy in time to prevent hyperinflation?”, Schiff wondered.
I sincerely hope I don’t need to explain just how ridiculous that really is. Oil prices went negative last week. Core inflation printed below zero for the first time in a decade last month. We are currently witnessing a deflationary supernova the likes of which modern human beings have never seen. For the past month, consumption has effectively been forbidden by government decree. In the past five weeks alone, America has lost more jobs than were created over the preceding 11 years.
And yet, through it all, Schiff is still trotting out his best hyperinflation zingers.
Apparently, the only things in Peter’s inflation basket are rent and wholesale, choice beef, which hit a record high on Tuesday.
None of the above is to suggest there’s no truth in what this trio of habitually abrasive Fed critics had to say on Wednesday while Powell was busy awkwardly leading a Skype call with a dozen reporters. Additionally, I didn’t set out to pick on this particular trio. There are any number of other notable names I could have chosen.
Rather, the point is to state the obvious: This type of attention-seeking behavior from the same handful of people is entertaining during normal times, and to the extent you can somehow cut through the layers of hyperbole to get at the kernels of truth, they do serve a purpose. But during a modern day depression, there is no benefit to the public from the shrill parroting of disingenuous narratives.
Finally, let me reiterate that when it comes to pointing out the fact that the Fed’s policies have exacerbated inequality, thereby making situations like the current debacle worse by leaving middle- and lower-income Americans even more vulnerable, no one has been more vocal than me.
In fact, it was just this week when I again reminded the world that it is not a coincidence that some measures of inequality increased at the onset of the Fed’s response to the GFC. Here’s an example:
The rapid ascent of the red line is in no small part due to the fact that the Fed (and other central banks) have spent the last decade writing policy prescriptions which have inflated the value of the assets concentrated in the hands of the wealthy.
But here’s the thing, folks. Just because Jerome Powell’s net worth happens to be obscene, doesn’t necessary mean he’s any less concerned about everyday Americans than your favorite Fed critic with a sarcastic wit and a Twitter account.
And even if you insist on saying Powell doesn’t care about everyday people, can we not grant him a license to feign empathy during a depression?