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Independence Day
If you read any overdramatized market wraps produced by mainstream financial media outlets headed into Tuesday, you might've worried Jerome Powell was poised to deliver a veritable death blow to any lingering good vibes engendered by last week's "Goldilocks" US jobs report. After all, the December FOMC minutes contained an unusually explicit reference to the counterproductive nature of stock rallies vis-à-vis the inflation fight.
However, if you took a few minutes to read about the event Powel
The fed chairman is like a thermonuclear weapon- if you use it the deterrent is gone….
Is “Central bank independence” an objective or a subjective concept?
While I appreciate the nod to independence, he didn’t fare well last time that independence was tested. I worry he’ll crumble in the face of attacks again this year.
I believe Powell succumbed to Trump’s bullying and intimidation by maintaining the monetary stimulus for too long as Congress passed major fiscal support…now I’m hopeful Yellen will nurture and nudge him where the country needs him to be…
If you consider the argument that Powell kept policy lose longer than needed in order to secure re-nomination (I find some merit in this view), then we get the other side of the Fed “independence” coin. Perhaps Powell and the committee truly believe in central bank independence from near term political pressure, the problem is that we lack a protection mechanism from the internal and very real pressures born in a desire to advance personal agendas and careers. The heart of a technocrat can lead policy stray as much as the ambition of a politician can, in the end we all pay the price, independence comes in multiple flavors.
“the problem is that we lack a protection mechanism from the internal and very real pressures born in a desire to advance personal agendas and careers.”
I have questions about Jim Bullard in that regard.
Planet Money did a show about “Fed Independence Day”. It has a memorable anecdote about how Fed Chairman William McChesney Martin stood up to LBJ and asserted the independence of the Fed.
LBJ was recovering from a broken arm at his ranch in TX. He summoned McChesney to give him a piece of his mind for raising rates against his “orders”. LBJ is no slight man, and at one point became so angry that he lifted McChesney by the collar and held him against a wall while he yelled at him.
McChesney didn’t back down, of course. The legitimacy of the Fed was at stake so he couldn’t reverse the decision if he wanted to.
Here’s the podcast:
https://www.npr.org/transcripts/699560367