How will the Fed respond to White House’s criticism?
Removal of monetary stimulus makes presidents and governments feel annoyed
The Fed’s ex-president Paul Walker once chose Jackson Hole as a meeting place for top world’s bankers because he was really into fishing. Fishing in summer. Not in winter. If you fall asleep when fishing in winter you can well fall victim of the weather. Ben Bernanke and Janet Yellen were trying very hard to catch the markets asleep during their visits to the resort; the markets, though, were catching any flavor of changes in monetary policies. Whether it was an extension or an end of QE; or federal funds rate hikes.
The upcoming meeting in Jackson Hole is associated with the markets. The chief bankers will be discussing their influence on the countries’ monetary policies. The topic is like which came the first, the chicken or the egg. The central banks may seem to be developing the economic cycles and making financial markets respond to them. However, history has witnessed many cases, when the market turmoil created problems and got the regulators put off taking important decisions. For example, the Fed consists of adults. And adults don’t run from problems. They prefer to lie down and rest.
The meeting features the contrast between the central banks’ wish to quit the ultra-easy monetary policies and the executive authorities’ reluctance to do it. The Italy’s anti-euro government insists on extension of the European QE, Donald Trump criticizes the Fed’s Chairman for the aggressive monetary restrictions. In fact, who will be pleased by an offer like “help yourself, take sweets as many as you like, even two of them”? The U.S. quantitative easing program is over, it is now the turn of Europe and Japan, but the presidents go on demanding monetary stimulus. I have a feeling that there is a crisis, and they are chasing after it. Just for sport. Hunting is a real sport, isn’t it? Especially when you have run out of bullets but the wild pig is still alive!
Investors have been discussing the whole week how Jerome Powell will respond to the U.S. president's criticism. It was Powell, not Janet Yellen, who Donald Trump once offered his hand and his heart as he believed the present Fed’s chairman to be more dovish than the former one. Now, the U.S. president is annoyed by the Fed’s aggressive hiking its rate and blames Powell for everything, though he understands that he can save the marriage from the divorce only if he comes to the wedding. The four-year contract suggests that the central bank’s president can do anything until the term expires. Even hike the federal funds rate five times in a year.
Powell can do nothing but excite pity. He begins to suspect those wishes of love and money as much as possible, when he was taking up the office, to be not true. He got far stronger economy than it was with Janet Yellen and a far more eccentric president than Barack Obama. In the end, Powell has to choose between the necessary measures, demanded by strong economy, and a pause, wanted by the man, who once advanced him to the post. A hard choice. Like choosing which you need more: you head or your arm. His speech is going to be quite funny. The markets will get enough of circus. I don’t think there will be any problems with bread, I mean, the food for thought.
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