Jerome Powell plans to cut interest rates despite persistent inflation | Top Vip News

Carlos Gasparino

Business

By Carlos Gasparino

Federal Reserve Chairman Jerome Powell is not known for his determination.

It’s the main reason the emerging new consensus among Wall Street Federal Reserve watchers is that it will cut interest rates at least twice this year despite signs of persistent inflation, the Post has learned.

If the CEOs and senior executives who follow the Fed are to be believed (and these people have sources inside the central bank building in D.C.), Powell is already dismissing last week’s high inflation readings as a likely anomaly. .

Its first rate cut since it started raising rates in March 2022 will come in June, they say.

They tell me a second one will follow in September.

And perhaps a third after the presidential elections in November.

The consumer is the loser.

These people say that both Powell’s policy and style as Fed chair are at stake.

And in the end the big loser could be the American consumer if he once again misjudges the economy’s inflationary threat.

More worrisome new inflation data could force Powell to take a more hawkish stance, but it would have to be really worrisome, Fed watchers say.

Powell’s style, of course, is to telegraph the markets, even if that’s not part of his job description.

The Fed’s dual mandate is to achieve price stability while maximizing employment, not to enrich traders.

That said, Powell, if anything, is consistent to a fault and hates throwing curveballs at the markets because he thinks (wrongly, IMHO) that price stability for financial assets is part of his job.

All of his recent statements are consistent with at least two small rate cuts later this year as other data emerges to support (or rationalize) his fundamental belief that inflation is declining and that he needs to protect against a recession.

The increasingly toxic political atmosphere in DC, particularly during the Biden presidency, will generate more pressure toward rate cuts.

Powell has been known to compromise in the past; Former President Donald Trump maliciously tweeted at Powell to change course on raising rates during an economic boom a few years ago and as the 2020 election loomed, perhaps the worst example of complacency by any Fed chief in the past. recent history.

By cutting rates in late 2019 for no good reason other than to silence Trump, the Fed was left with fewer options when rates really needed to be cut a few months later, during the height of COVID.

The Biden White House knows Powell is an easy target, and it also believes lower rates are the way to win re-election in the fall because they need to change the conversation about Sleepy Joe, and fast.

There is no longer whispering in Democratic circles about Biden’s lack of mental acuity; Now it’s a total panic.

That special counsel’s report on whether Biden properly handled the classified documents confirmed what most Americans have witnessed: The president is a frail old man with weakened mental acuity.

Democrats need something to stand on and believe the economy is their last best hope.

That’s why Biden’s advisors are publicly and privately leaning on Powell to cut rates; They believe the headline numbers (low unemployment and decent GDP) are solid and can be strengthened by a push from the Fed with easier money.

The markets will love it, and who knows, people may forget about the still-sticky inflation and vote for Sleepy Joe.

Yes, a roaring job market, another bull market, and relative economic stability are not a bad selling point against someone as volatile as Donald Trump, who carries his own baggage, both personal and legal.

Alas for miscalculation!

The problem with a push for Powell is if he miscalculates.

Remember “transitory inflation”?

Well, one of the reasons Powell has curbed liquidity so hard (raising short-term rates, from zero to 5.5%, 11 times in less than two years) is because he misread economic indicators back in the day. 2021.

Powell thought, only for reasons he knew, that excess fiscal and monetary stimulus during and after the worst of COVID and its lockdowns would not destabilize prices.

Simple economics (and common sense) teaches us that too much money chasing the same amount of goods and services (or less due to lockdowns) always leads to massive inflation, as it did.

The inflation rate is finally lower: that’s the good news.

The bad news: Prices for staples like food and energy remain wildly high, another reason Biden’s polls are horrible heading into an election year.

Last week’s CPI and PPI spikes underscore the dangerous nature of inflation: it never dies easy, which is why the story of the fight is never a straight path.

Recall how the great Federal Reserve Chairman Paul Volcker had to make at least two attempts at massively higher rates to control the price spiral of the late 1970s and early 1980s.

It was tough for a couple of years, but once inflation was tamed, we had decades of economic growth.

That great economy (and Volcker’s place in history) was achieved because he resisted political pressure (actually mocked it) and focused on his work.

If Powell cares about his legacy, he will do the same.