Fed Chair Powell’s interview
Fed Chair Powell’s interview on “60 Minutes” could have been a counter move to restore faith in Fed policy following unprecedented public criticism from US president Trump who labeled the Fed “crazy” in December due to its interest rate hike path.
Global populist movements energized by populist leaders could be the Fed’s greatest risk.
So while rising populism with its catchy chant to “end the Fed” was not mentioned at all as a concern in Fed Chair Powell’s interview on “60 Minutes”, the reality could be quite the opposite.
There is an unmistakable populist revolution currently playing out against central banking, a few populist leaders have let the cat out of the bag.
US Trump’s the Fed is “crazy” is not the only democratically elected leader to take aim at the central bank so too Italy’s Salvini recently said that the nation’s “gold reserves are the property of its people, not of anyone else”. The populist tide is turning against central banking and the banking cartel could fear that this movement turns into a tidal wave which threatens to wipe-out centuries of their power and privileges
Fed Chair Powell’s interview on “60 Minutes” to a wider audience is a charm offensive
A campaign to show the human-friendly face of the Fed which is designed to win the support or agreement of others. But the Fed is to some extent similar to any other corporation in that it has a product to sell, its product is debt. While the Fed’s shareholders are probably over the moon with global debt now in excess of $164 trillion there are many (too many) left holding the short end of the stick, entire nations and peoples have become enslaved to debt.
So how will the Fed persuade people to accept a life of debt servitude?
“There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears,” Aldous Huxley.
Fed Chair Powell’s interview was about reassuring the public that the domestic economy was doing fine despite tumbling retail sales and soaring auto loan delinquencies
“Economy is in a good place outlook is a favorable one, inflation is muted,” said Fed Chair Powell.
But Fed Chair Powell admitted that there is a two-tier economy which is not generating prosperity for everyone. “Not everyone is experiencing this wide spread of prosperity,” added the Fed Chair.
Fed Chair Powell’s interview sheds light on what is meant by a patient Fed when it comes to setting monetary policy.
“Patient means we don’t feel any hurry to change our interest rate policy,” he admits that there is evidence of the global economy slowing down. Although the US economy is performing well, Growth is under 3% with low levels of unemployment.
Nevertheless, “risk comes from slower growth in China, Europe, and Brexit,” said the Fed Chair
“Growth this year will be slower than last year,” said Fed Chair Powell which explains why the Fed capitulated on its monetary normalization policy in February
Fed Chair Powell’s interview was intended to manage investors expectations for what could be a long period of lackluster growth
“Growth will be positive and at a healthy rate,” said Fed Chair Powell.
Here is the zinger why the world’s largest economy is unlikely to grow more than 4%.
“Labour force is growing more slowly. Less than 1% per year,” said Fed Chair Powell.
“Sustained 4% growth would be challenging because of slowing growth of the workforce,” he added.
Put another way, worker participation rates are declining as the fourth industrial revolution of autonomous AI smart machines makes humans increasingly redundant in advanced economies.
“Can the President fire you” asked the interviewer.
“The law is clear that I have a 4-year term and I fully intend to serve it,” said Fed Chair Powell. So the answer is “No”, he added
Fed Chair Powell’s interview also shed some light on the mystique surrounding who the Fed answers to
“We are directed to take in a strictly non-political way of serving all Americans. Our decisions on rates cannot be reversed by any other departments of government our accountability runs through the elected representatives and oversight committees in Congress,” said Fed Chair Powell.
Cyber attack was flagged as the main risk in Fed Chair Powell’s interview
“Cyber threat risk we face is the largest one.
Cyber threat is a relatively new type of risk with nation-state actors and it is one where the playbook is still being developed in real time.
We devote a vast amount of time and resources to protect the Fed and financial institutions. The banks we supervise are required to have plans in place and state of the art technology. I would say for cyber risk that I have never felt a time when we are doing enough”, said Fed Chair Powell.
Low labor force participation rate is another risk in the economy, according to Fed Chair Powell. “As technology evolves it requires raising skill levels of the people. The US educational attainment has not moved up as rapidly as it has in other countries” added Fed Chair Powell.
Globalization was also cited by Powell for low participation rates but that now been superseded by automation.
Fed Chair Powell’s interview also confirmed to investors the Fed’s willingness to modify their monetary policy to achieve its inflation target of 2%.
“I think we would not overreact to inflation modesty above 2%. We will always be moving inflation back to 2% with our policy, we would do that in a symmetric way,” said Fed Chair Powell.
What about the resilience of the American banking system?
It is “much stronger and resilient than it was before the financial crisis. The largest banks have double the amount of capital to absorb losses. There is a plan in place which doesn’t involve a taxpayer bailout.
The opioid crisis was also brought up Fed Chair Powell’s interview.