“Even after the unexpectedly positive May employment report, nearly 20 million jobs have been lost on net since February”, Jerome Powell said, in prepared remarks for his teleconference with the Senate banking committee on Tuesday.
The Fed chair was attempting to underscore a simple point – namely that while May’s jobs report was welcome, the 2.5 million positions added back hardly make up for the tragedy that unfolded in March and April.
There is indeed a “V-shaped” recovery evident in a chart of the month-on-month change in payrolls. But the figure below shows the reality facing America’s labor market. The orange dot represents what Donald Trump called “the greatest comeback in American history”.
Powell’s cadence has been cautious, including during his post-FOMC meeting press conference last week.
That caution doesn’t sit particularly well with the White House, but given everything the Fed has done to backstop markets and the recovery, even Trump realizes that the steps the central bank has taken over the past three months count as extremely aggressive. Besides negative rates, there isn’t much else Trump could ask of Powell from a policy perspective. But what the president did suggest last week (and Larry Kudlow echoed the sentiment) is that the Fed chair sound more optimistic.
In any event, Powell’s prepared remarks for Congress were largely a reiteration of familiar talking points, and you can read his testimony in full below.
What I wanted to briefly point out is the following excerpt:
The burden of the downturn has not fallen equally on all Americans. Instead, those least able to withstand the downturn have been affected most. As discussed in the June Monetary Policy Report, low-income households have experienced, by far, the sharpest drop in employment, while job losses of African Americans, Hispanics, and women have been greater than that of other groups. If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.
Moreover, the longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures. Long periods of unemployment can erode workers’ skills and hurt their future job prospects. Persistent unemployment can also negate the gains made by many disadvantaged Americans during the long expansion and described to us at our Fed Listens events. The pandemic is presenting acute risks to small businesses, as discussed in the Monetary Policy Report. If a small or medium-sized business becomes insolvent because the economy recovers too slowly, we lose more than just that business. These businesses are the heart of our economy and often embody the work of generations.
As regular readers are acutely aware, I’ve gone to great lengths in these pages to tell both sides of the story when it comes to the Fed’s role in perpetuating inequality through accommodative monetary policy.
There are two reasons I’ve spent so much time on this subject. Those reasons are:
- It’s important and becoming more pressing by the week, as protests against racial injustice serve as a poignant reminder that inequality of all sorts is a systemic problem in the country. When viewed through the lens of equality of opportunity, this argues for a total rethink of American-style capitalism, which clearly is not working for the vast majority of the country’s citizens.
- It’s hard to get both sides of this story anywhere else, because Fed critics who, frankly, care nothing at all for the plight of the poor, exploit the situation to fuel confusion and distrust in America’s institutions, both for their own financial gain and also for the purposes of advancing narratives often associated with foreign influence campaigns.
Because I’ve spilled so much digital ink on this, I won’t burden readers by recapping it all in exhaustive detail. (Those who want more are strongly encouraged to read here, here and here.)
Rather, I simply want to draw your attention to the fact that Powell’s protestations notwithstanding, the inescapable reality of the situation is that monetary policy operating in isolation and through primary dealers (on the QE side) is one of the most effective amplifiers of inequality that exists in America today.
The following chart simply shows the share of total assets held by the top 1% rising in tandem with the share of corporate equities (i.e., stocks) held by the same 1%, alongside the rise in the Fed’s balance sheet post-financial crisis.
You’ll note that the data on asset concentration is on a two quarter lag, while the Fed’s balance sheet is up to date. What is almost assured to happen barring another collapse in stock prices, is that the concentration of wealth and stocks in the hands of the 1% will slip in Q1 (reflecting the selloff in stocks) before rebounding and continuing to rise steadily after that.
Anyone who’s read Piketty knows where this goes in the event growth continues to remain subdued in developed economies. Capital will continue to gain share.
That is what I wanted to point out on Tuesday, to mark Powell’s testimony on Capitol Hill.
Powell will, of course, continue to insist that the Fed isn’t perpetuating inequality. And, as I wrote last week, there isn’t much utility in arguing the point with him, as he and critics are talking past each other.
Powell is emphasizing the necessity of the Fed stepping in to avert a calamity that crashes the economy, pushing everyone down a rung (or two), leaving the middle-class poor and the poor destitute.
Critics, on the other hand, argue that Fed policy has, for at least a decade, inflated the value of the assets concentrated in the hands of the rich, thereby widening the wealth gap.
Both Powell and critics are correct.
The problem for Powell (and developed market central bankers more generally) is that we don’t know what would have happened in the absence of Fed intervention in 2008/2009. Likewise, we’ll never know what would have happened had the Fed let the world burn in March.
What we do know, though, is that the rich are getting richer, and the poor poorer.
Jerome Powell remarks before the Committee on Banking, Housing, and Urban Affairs
Powell Testimony 6-16-202
Is this how empires die? It was one of my life goals to experience first-hand the death of an empire.
I agree that the Fed had to dump every dollar they could to prevent a deflationary winter. Seems they’ve done that. This said, it’s time to focus on the real economy. I know the Fed can’t do this and incompetent managers in DC are to blame for not doing more on the fiscal side.
I just don’t see how this ends well for anyone.
“Is this how empires die?” IMO, pretty much. Unless people are working with growing incomes, predicted growth on Main St. will be fake news.
Years ago a company came to my town and presented a plan to redevelop the abandoned property of a bankrupt company, formerly a member of the Fortune 500. They wanted to use the large building to grow mushrooms in the dark with some sexy proprietary compost they made from the waste left behind by the many farmers in the area. I received a call from the city fathers asking me if I would evaluate this “wonderful opportunity” for jobs and growth, blah, blah and tell them whether or not giving these guys a bunch of money would be a good idea. I took a look and soon discovered the deal was not all it seemed. The company had already done this deal several times in several cities. Each time they did this they would use the subsidy funds received to pay their last corporate shell for the used equipment they would provide to the new company they would set up. Each time they spun this old used equipment through the corporate mill they would do so at increased value, allowing the old worthless company to book a nice gain and the new company to establish a new higher value for the old used equipment which could then be depreciated for growing tax savings. Meanwhile, the gain to the former shell would be erased by non-cash losses arising from the closing of that company. I could find at least four instances of these shenanigans prior to the offer to my town. We turned them down but later that summer I was talking to a friend in another state and lo and behold when he hears my story he tells me those guys had just been through his town with a different story trying to get even more money.
It strikes me that this con game closely resembles what’s going on on Wall St these days. The stock market is largely a secondary market, just a jumped up garage sale, really. No longer related financially to a company the same old used securities, whose prices are supported supported by a long line of “greater fools” keep spinning round and round and rising in price with no visible means of support but a bunch of proprietary compost. Meanwhile what happens to the real people out there? Mostly nothing good.
I assumed the day we went to Iraq was the beginning of the American Empires decline. Funded by deficits and no realistic goal. I hope we dwindle and have a second shot of being an admirable Nation among Nations. Empires can not be isolationists. Overstepping to Isolationism in a decade, how strange.
From his 2019 financial disclosures, Jerome Powell’s self reported net worth is in the range of $17.7 million to $54.9 million. While he may have sincere concern for the net 20 million people still unemployed due to the pandemic, I wonder how long it will take the media to focus on how all the pandemic responses from the Fed have likely supported his net worth more than it has supported these net 20 million people still unemployed.
I don’t think you’re being entirely fair to the Fed chair. Powell, an insider’s insider, could’ve made a lot more than he has without breaking a sweat; that he hasn’t speaks at least a little bit to his personal integrity. More importantly, the Federal Reserve system wasn’t created to serve and protect Labor; it was created to bail out Capital whenever Capital succumbs to irrational exuberance (which happens often). It’s Congress’s role to maintain a safety net for wage workers, the eldlerly and infirm, etc. But the so-called Reagan Revolution put paid to that notion. Such is life.
The Fed is trapped in a labyrinth of their own crafting, every step they take to prevent a collapse of the system results in a widening of inequality and a bigger asset bubble. But look at the bright side, we get to live another day in a nation where the top 1% gets richer and more powerful while large corporates keep issuing debt at infinitum because the guys who prints the $$ will buy their debt. Yes the system survives and the poor return to their 9 to 5s, earning less than before while small businesses vanish, but Americans can still purchase junk at Costco so the show carries on. God forbid we allow the top 1% to experience the consequences of free capital markets, they shall only experience the pleasures.
This is what happens when fiscal and legislative tools go unused or misused for a decade leaving monetary tools to do all the work. Things get grossly unbalanced.
Poor Jerome Powell. The guy deserves a break. He is not the cause of wealth inequality.
According to OpenSecrets.org, in 2017 there were 11,444 lobbyists appearing in reports filed by Congress.
There are roughly 535 Senators and Representatives comprising Congress.
Just sayin.
Capitalism is an economic system that leads to inequality. There is real no debating this point. The winners, win, and the losers,lose. Much of the 20th century was devoted towards governments softening the sharp edges of capitalism–providing various degrees of safety nets. Despite this, inequality is spiking yet again to levels last seen in the 1920s. Systems adapt. Owners of capital learn how to work the system. Central banks have not helped, they are inequality generating machines. The existential crisis for capitalism has arrived. Can it survive? AOC and MMT types would just as soon kill it off for good and replace it with what? That is the big question. Why does the 4th turning, Neil Howe, make so much sense?