Fed Chair Jerome Powell gave a speech today on monetary policy and the Fed’s independence. It is a warning shot to Congress on mission creep.
Monetary Policy Discussion
Recent readings on both job gains and inflation have come in higher than expected. The economy added an average of 265,000 jobs per month in the three months through February, a faster pace than we have seen since last June. And the higher inflation data over January and February were above the low readings in the second half of last year.
The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path. Labor market rebalancing is evident in data on quits, job openings, surveys of employers and workers, and the continued gradual decline in wage growth. On inflation, it is too soon to say whether the recent readings represent more than just a bump. We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.
We have held our policy rate at its current level since last July. As shown in the individual projections the FOMC released two weeks ago, my colleagues and I continue to believe that the policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.
The more interesting message was Powell’s warning shot to Congress on politics, independence and climate change.
Fed Independence
The Fed has been assigned two goals for monetary policy—maximum employment and stable prices. Our success in delivering on these goals matters a great deal to all Americans. To support our pursuit of those goals, Congress granted the Fed a substantial degree of independence in our conduct of monetary policy. Fed policymakers serve long terms that are not synchronized with election cycles. Our decisions are not subject to reversal by other parts of the government, other than through legislation. This independence both enables and requires us to make our monetary policy decisions without consideration of short-term political matters. Such independence for a federal agency is and should be rare. In the case of the Fed, independence is essential to our ability to serve the public. The record shows that independent central banks deliver better economic outcomes.
To maintain the public’s trust, we also need to avoid “mission creep.” Our nation faces many challenges, some of which directly or indirectly involve the economy. Fed policymakers are often pressed to take a position on issues that are arguably relevant to the economy but are not within our mandate, such as particular tax and spending policies, immigration policy, and trade policy. Climate change is another current example. Policies to address climate change are the business of elected officials and those agencies that they have charged with this responsibility. The Fed has received no such charge.
We will remain alert to the risk that there will be pressure to expand that role over time. We are not, nor do we seek to be, climate policymakers. In short, doing our job well requires that we respect the limits of our mandate.
Ominous Technical Trends for US Treasury Bulls, Three Durations
Technical patterns on 2-year, 10-year, and 30-year US treasuries all suggest yields are heading higher. Let’s also discuss the supporting fundamental case.
For US Treasury discussion, please see Ominous Technical Trends for US Treasury Bulls, Three Durations
On Friday, the BLS releases the job’s report for March. ADP was on the hot side at 184,000 private jobs with consensus at 150,000.
The Fed will not be cutting if jobs are this strong.
Does anyone know if one word from The Fed is true? Does anyone believe them? Price stability? Are they serious. I am 75 this year. Since I was a kid in the 1950s, I remember stable prices until Nixon removed the gold backing for the Dollar. Since then, it is a one way street to always higher prices. Just think if the 100 year old house I grew up in. It is in San Diego. My father and mother bought it for $26,000 in 1961. The last I checked it sold for $2.7 million. I bought a lovely 1955 Ford in perfect condition for $100 in 1965. In 1971 I bought a brand new Honda for $1999 and paid cash. PRICE STABILITY! What a JOKE.
Legally the Fed has NOT a “dual” mandate, but single mandate with 3 assigned goals! They intentionally mislead us about this by oversimplifying to “dual mandate” everywhere they talk.
From the <a href = “link to federalreserve.gov“>Fed’s own website</a>, the language of the Federal Reserve Act (numbering added):
(1) The Fed’s only legal mandate is maintain long run growth of monetary and credit aggregates commensurate with the economy’s long run potential to increase production.
(2) maximum employment (note: NOT the same as “low unemployment”)
(3) stable prices (no, this does not mean “0-2% inflation” nor “symmetric around 2% inflation”)
(4) moderate long term interest rates – Gee I wonder why they never talk about this?
The Fed’s “success” or lack thereof depends on fiscal policy, foreign policy, and much besides. On balance, the role of the Fed in keeping prices stable may be fairly negligible or even counterproductive.
Ultimately, the Fed has another goal that is not explicit and trumps all others: keeping its owners — the banks — and the financial sector profitable. In this it is doing a stellar job.
“…maximum employment and stable prices. Our success in delivering on these goals matters a great deal to all Americans.”
Notice he said goals. A cyclical economy has other plans. Except for a period of time, the FED is never able to stay at the goal post and perpetually maintain what it proclaims to be full employment and stable prices. At 2%, prices gradually climb.
Maximum employment and stable prices are counterproductive: low unemployment -> higher prices, discounting automation – until unchecked free trade enters the picture.
Seems people’s deputies of the past weren’t smarter than the present ones.
“The Fed has been assigned two goals for monetary policy—maximum employment and stable prices.”
Yep. Stable prices of both cell phones and NYC delivered BJs. As for the price of everything else, including irrelevancies such as housing, schooling, health care, transportation, decent quality food and retirement saving products so Americans can sleep well at night….., eh,uh; weeelllll: They’re, you know, not, like, in our, like, arbitrary, like, basket that we, like, made up and, like, stuff. You know…..
And maximum employment as in: As many as possible being too broke to afford taking a day off nor ever retire from grocery bagging. Antebellum cotton plantations had no unemployment at all, remember!
Yeah, we’re such a useful, like, institution and, like, stuff!
…
“Our success in delivering on these goals matters a great deal to all Americans.”
As in: If Putin offloaded his entire stockpile directly onto the heads of not only us, but also every single idiot genuinely illiterate enough to ever have believed, even for one millisecond, that we have ever, even once, served any positive purpose whatsoever: All remaining Americans, from now until forever, would be near infinitely better off. And not one word of that is hyperbole. That’s how much “we” really matter to Americans
Independence? From the banks?
He left out racial equity. Intentional?
“The Fed has been assigned two goals for monetary policy—maximum employment and stable prices. Our success in delivering on these goals matters a great deal to all Americans.”
How does having the goal of devaluing the currency at a blistering 2% per year result in stable prices???? The only thing stable is that post-fed the purchasing power of the dollar has declined.
Also, he should have said ‘assumed’ since no one can actually assign the fed a goal that matters to/benefits the general public.
Why on earth should an institution set up ostensibly to “look after” banks have any role in employment or prices?!
2% year over year is the most egregious theft. 2% this year of last year’s 2% and 2% of the year before that’s..and so on… until (obviously) your monetary unit is literally worthless.
I just paid over $200 for minor repair
1 hour at $150 per hour
they complained that it’s been nearly 2 years since they raised hourly rate
That hourly rate amounts to $312,000.00 per year! Was your minor repair? Knee surgery? That some special contractor you got there, but I would get a second opinion on your knee first…
Wrong kind of body shop, I suspect
Did they not also inform you they’re about to increase labor to $175/hr? The walls have ears
2% inflation – what are we in year 1990
I have to confess, whilst i always said yields would rise over the long term, i expected them to dip for a year or two first.
well if true then Jerry is going to print few more TRILLION
He doesn’t print anything, do you not understand how it works?!
Rates drop because UST bond yields fall.
Monetary Policy Discussion:
– The economy added an average of 265,000 jobs per month in the three months through February, a faster pace than we have seen since last June.
> That could however, point out over Hiring, and over hype about what realistically was taking shape. I see that number being downgraded substantially next report related to this number.
– The recent data do not, however, materially change the overall picture, which continues to be one of solid growth
> Growth is rapidly slowing down in nearly all segments of the economy.
– Inflation moving down toward 2 percent on a sometimes bumpy path.
> Inflation has not come down at all yet, from the rise it has been taking. The small insignificant drops are not pulling it down at all.
– Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.
> We realize it’s a house of cards, but can’t admit that, so we will try to buy as much time as we can before November, so we have time…
Fed Independence:
– maximum employment
> Can we try a New Approach, like Maximum Livable Employment
– stable prices
> Can we stop printing money, we don’t have, and begin to help inflation fall
– Congress granted the Fed a substantial degree of independence in our conduct of monetary policy.
> Let me know how that works out… Idiots!
– Fed policymakers decisions are not subject to reversal by other parts of the government, other than through legislation.
> Nothing states “Control” better than having the “Fox Guard the Henhouse”
– Policies to address climate change are the business of elected officials.
> I had not realized, that all of our elected officials, had science educational backgrounds and degrees in Climate.
– Fed has received no such charge.
> Thank goodness!!!
Good to see Jerome getting some millage out of that single undergrad required ecology class he took long ago.
We might wonder whether the Fed can be completely automated. If not, why not?
And we can look forward to when a large language model replaces the horoscope generators they are using now to make public statements.
“We might wonder whether the Fed can be completely automated. If not, why not?”
They’re the easiest of all to automate: Just pull the plug.
Same goes for 95% of the rest of government, come to think of it. But given the sheer size and consequence of The Fed, they are definitely the part most ripe for said automation.
That would be data-driven extremism. We can’t have that without the necessary human corrections, can we?
To a degree I agree with the FED, but I do not agree with their full employment mandate. The very essence of a recession and cooling of the economy goes with less employment. The dual mandate is a joke.
Yea … leave Climate Change with the Treasury and (ol’) Yellen.
Treasury will do as good with that as they she did with supervising SVB. Climate loans … no reserves needed.
End the Fed!
link to amazon.com
Hoot of the day:
“The record shows that independent central banks deliver better economic outcomes.”