Powell faces political pressure once again as concerns about the economy mount

Jerome Powell, Chairman of the US Federal Reserve, speaks during a federal hearing event in Washington, DC, US, on Friday, September 23, 2022.

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Political questioning of the Federal Reserve Chairman Jerome Powell About the central bank’s policy moves are intensifying, this time from the other side of the aisle.

No stranger to political pressures, this week the Federal Reserve chairman found himself the epicenter of anxiety in a letter from Senator Sherrod Brown. Ohio Democrat warned in the message About the potential job losses from the Fed’s rate hikes it uses to combat inflation.

“Your job is to fight inflation, but at the same time you must not lose sight of your responsibility to ensure that we get a full job,” Brown wrote. “Potential job losses caused by excessive monetary tightening will only exacerbate these matters for the working class,” he added.

The message comes as the Fed remains less than a week away from the two-day policy meeting that is widely expected to conclude November 2 with a 0.75 percentage point increase in a row for the fourth time. That would raise the central bank’s benchmark interest rate to a range of 3.75% to 4%, the highest since early 2008 and the fastest pace of policy tightening since the early 1980s.

Without recommending a specific course of action, Brown asked Powell to remember that the Fed has a two-pronged mandate – low inflation plus full employment – and requested that “decisions you make at the upcoming FOMC meeting reflect your commitment to the dual mandate.”

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The last time the Federal Reserve raised interest rates, from 2016 to December 2018, Powell faced harsh criticism from former President Donald Trump, who on one occasion They call central bankers “bonheads.” He seemed to compare Powell negatively with Chinese President Xi Jinping when asked in a tweet, “Who is our greatest enemy?”

Democrats, including then-presidential candidate Joe Biden, Trump criticized for his comments made by the Federal ReserveInsisting that the central bank is free from political pressures when formulating monetary policy.

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Brown’s position has been much more accurate than Trump’s – although it is equally unlikely to drive demand for monetary policy.

“President Powell has made it clear that the necessary conditions for the Fed to achieve the full employment target are low and stable inflation. Without low and stable inflation, there is no way to achieve full employment,” said Mark Zandi, Moody’s chief economist. Analytics. “He’s going to stick his gun on this. I don’t see this having any material impact on Fed decision-making.”

To be sure, while it will likely be a reaction to a shifting tone from some Fed officials and a slight shift in economic data, market expectations for monetary policy have shifted quite a bit.

Tryon: If the Fed abandons its 2% inflation target, it will be disastrous in restoring its credibility

Traders came to terms with a three-quarter increase in interest rates next week. But they now see only a 36% chance of another such move at the December Federal Open Market Committee meeting, after earlier rating it with a probability of close to 80%, according to CME group data.

The change in sentiment came after cautionary notes about overly aggressive policies from several Fed officials, including Vice Chairman Lyle Brainard and San Francisco regional president Mary Daly. In comments late last week, Daly said she is looking for a “stepping down” point where the Fed can slow the pace of its rate moves.

“The democratization of the Fed is the issue for the market, how much power other members have versus the president. It’s hard to tell,” said Quincy Crosby, chief equity strategist at LPL Financial. Regarding Brown’s letter, Crosby said: “I don’t think it will affect him…not the pressure coming from politicians, which is to be expected.”

A Federal Reserve spokesman acknowledged that Powell received Brown’s letter and said it was normal policy to respond to such communications directly. In the past, Powell has been generally dismissive when asked if political pressure could be a factor in decision-making.

Employment data will be key

Besides the caution from Brown, Powell also faced criticism from others on Capitol Hill.

Senator Elizabeth Warren, a very progressive Democrat and former presidential contender, called Powell dangerous and also recently warned of the impact that higher interest rates could have on employment. Also, Senator Joe Manchin, DW. Virginia, last year criticized Powell for what was seen as a sobering reaction by the Federal Reserve to an early rise in inflation.

“I don’t necessarily think Powell is going to succumb to political pressure, but I do wonder if some of his colleagues are starting to, and some doves getting hawkish,” said Peter Bokfar, chief investment officer at Bleakley Advisory Group. . “Employment is good now, but as the months go by and growth continues to slow and layoffs begin to increase at a more noticeable pace, I have to believe the level of stress will grow.”

Salary gains have been solid throughout the years, but a number of companies have said they will either freeze hiring or scale back as economic conditions ease. a slowing economy And stubbornly high inflation is making a difficult backdrop for the November elections, when Democrats are expected to lose control of the House and possibly the Senate.

With the high stakes in mind, both markets and lawmakers will listen closely to Powell’s post-meeting press conference next Wednesday, which begins six days before the election.

“He knows the pressure. He knows that politicians are increasingly worried about losing their seats,” Crosby said. “By the way, there’s not much he can do at this point to help either side.”

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