Early in his term as Federal Reserve (Fed) chair, Jerome Powell decided to hold more frequent press conferences. The Federal Open Market Committee meeting press conferences started being held after every meeting, as opposed to every other meeting.
Powell made the change to keep the central bank on the path toward enhanced communication and transparency. Chair Powell may be regretting that decision this week as he is likely to face his toughest press conference since assuming Fed leadership. Meanwhile, the Biden administration is closing in on a decision about whether to renominate Powell for another term.
Criticism of Powell has been mounting on both sides of the aisle in Washington. Republicans are concerned that prolonged easy money policies are creating a spike in inflation, which can no longer be considered transitory. Democrats are questioning Powell’s leadership and ties to Wall Street, especially following the recent controversy on stock trading activity by Fed officials.
With the Biden administration struggling to gain favor with the progressive wing of the Democratic Party regarding the passage of a new infrastructure package, Sen. Elizabeth Warren’s reference to Powell as a “dangerous man” may take on more weight in Biden’s decision about whether to reappoint Powell for a second term.
A bigger concern for Chair Powell and his ultra-accommodative monetary policy should be Fed research that suggests the recent inflation burst could signal trouble for the economy. Fed Senior Adviser Jeremy Rudd’s paper suggests Powell’s belief that long-term inflation expectations are “a key determinant of actual inflation …rests on extremely shaky foundations.”
Rudd believes the Fed’s recent shift in inflation policy (so-called “average inflation targeting”) designed to push inflation above 2% for some time is likely to create more persistent pressures, especially among workers who demand higher wages to compensate for their lost purchasing power.
To steal a recent line from University of Mississippi football coach Lane Kiffin, investors may want to “get your popcorn ready” for Powell’s press conference tomorrow. A successful performance by him will be critical to help keep the economy and financial markets moving in the right direction.
Tags: Federal Reserve | Inflation | FOMC | Monetary policy
< Go to Viewpoints
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.