Powell pessimistic on inflation; the Senate confirms his second term

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 Powell pessimistic on inflation;  the Senate confirms his second term

Four more years. The Senate voted 80-19 last week to confirm Jerome Powell for a second term as Federal Reserve chairman last week, in a bipartisan vote whose outcome had already been predicted.

Thus, a member of the board of governors who became something of an accidental president after then-President Donald Trump misread his intentions to raise interest rates, has been duly reappointed and confirmed by the Senate to continue listening to the Fed economists and following their models.

People give Powell a lot of credit for following the playbook of his predecessor, Ben Bernanke, when faced with the challenge of the COVID-19 pandemic: print money like crazy and pray it works out.

It worked, except now we have runaway inflation, perhaps due to excessive money creation.

Anyway, the newly confirmed Fed chairman had some interesting things to say last week in an interview with Marketplace’s Kai Ryssdal. The headline of the interview:

“The question of whether or not we can execute a soft landing may actually depend on factors that we don’t control.”

Interesting, because for months Powell has insisted that the Fed has the “tools” to control inflation. Unfortunately, it seems that there are not enough tools. Perhaps the Fed should have acted sooner?

“If we had perfect hindsight, we would go back and probably would have been better off if we had raised rates a little earlier.”

Yes, perhaps, instead of labeling inflation transitory and not acting like any sensible central bank reacts when inflation rears its ugly head.

More: “The process of bringing inflation down to 2% will also be somewhat difficult, but ultimately the most painful thing would be if we failed to cope and inflation took hold in the economy at such high levels.”

The 19 senators who voted against confirmation were Republicans who were unhappy with Powell’s performance on inflation, but also some progressive Democrats like Elizabeth Warren, who accuse him of not doing enough on other issues, like regulation. banking or climate risk. History will tell us who made a good decision.

The central banks of the United States and Europe change their guard

The Dallas Fed has named powerful New York Fed Vice President Lorie Logan to succeed Robert Kaplan as head of the regional bank. Logan has recently been in charge of managing the Fed’s $9 trillion in assets as manager of the System’s Open Market Account.

Logan, a Fed veteran who has worked at the central bank since 1999, will be a voting member of the Federal Open Market Committee next year, when Dallas is one of four regional voting banks. With or without a vote, she will be a relevant voice in the monetary policy formulation panel.

The Senate has also confirmed Philip Jefferson and Lisa Cook to the Fed’s Board of Governors, and the Boston Fed has named Susan M. Collins as president, succeeding Eric Rosengren. She is the first black woman to lead a regional Fed bank, as the Fed continues to diversify its leadership.

At the European Central Bank, aggressive and cautious meet in the ECB’s governing council to decide whether to raise interest rates in July, having ended its asset purchase program.

The council is made up of 25 members, as each of the 19 national central bank governors sits on it, in addition to the six members of the executive committee.

Before the euro and the ECB, Germany’s conservative central bank, the Bundesbank, largely determined European monetary policy because the other countries in the European Monetary System had to follow Germany’s example.

Now, the head of the Bundesbank, Joachim Nagel, has only one vote in the Council, just like the representatives of Cyprus or Malta, and he cannot even vote in all the meetings due to the ECB’s rotation system.

Nagel, who took office in January, has become the leader of the most aggressive faction of the Council, but the French president of the ECB, Christine Lagarde, is on the side of the most cautious, as is the chief economist, Irish Philip Lane.

Europe is in a different situation than the United States, with an economy much more vulnerable to the repercussions of the war in Ukraine, although Europe is also facing rising inflation.

There is plenty of room for debate on the issue, but it is no coincidence that the strictest aggressive come geographically from Northern Europe and the prudent come from indebted Southern Europe.

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