#Powell

27 01, 2022

FedFin on: U.S. Central Bank Digital Currency

Arezou Rafikian2023-04-11T16:11:59-04:00January 27th, 2022|The Vault|

Months after initially promising to release a discussion draft on central bank digital currency (CBDC), the Federal Reserve is now seeking comment on whether and how it might create one. Reflecting the hesitancy of several FRB leaders, Chairman Powell included, the draft emphatically states that the Board has made no decision to issue a CBDC and, should it do so, it will seek at least tacit approval from both Congress and whichever Administration is in charge at the time.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

18 01, 2022

Karen Petrou: Inflation’s High Cost to Competition and Comity

Arezou Rafikian2023-04-24T15:18:29-04:00January 18th, 2022|The Vault|

It’s not news that the latest inflation data are disastrous. Even if they won’t last, as Mr. Powell again assured Congress, it sure is hard to see how the combination of pressures detailed in the inflation data lead to ta rate even close to the FOMC’s median projection for 2022 of 2.6 percent. This means that real rates will remain negative throughout 2022 and well into 2023. Indeed, given that the FOMC’s median projection for the near-term fed funds rate never gets above 2.1 percent, even the Fed has tacitly conceded that negative real rates may well be prolonged absent either divine intervention or another devilishly-deep recession. In June of last year, I predicted that U.S. inflation would not prove transitory and forecast the political impact finally understood at the highest levels of the Biden White House. Much is also now being written about the inequality impact I described last year, but little is said about the sum total impact of these sorry facts of life on the financial system. These may also prove anything but transitory.

The first financial-system impact of high inflation and slow growth for anything but the S&P is both political and structural. With his back increasingly pushed to the wall by inflation’s toxic equality impact, Mr. Biden defended himself against the latest CPI numbers by arguing that many of them are due to monopolistic price controls best cured by rapid antitrust initiatives such as the one already launched against the meat industry.

Other …

13 01, 2022

FedFin on: Brainard Navigates Troubled Waters; Looks Like Smooth Sailing for Thompson

Arezou Rafikian2023-04-24T15:40:10-04:00January 13th, 2022|The Vault|

At today’s confirmation hearing, Gov. Brainard took a lot of the heat on inflation Republicans only mildly mentioned during Mr. Powell’s Tuesday confirmation hearing (see Client Report FEDERALRESERVE67). As we anticipated (see Client Report FEDERALRESERVE66) this reflects the fact that the GOP is united in opposition to her appointment as Fed vice chair; should she hold Sen. Manchin (D-WV) she will be confirmed; if not, perhaps not. Ranking Member Toomey (R-PA) also used the occasion to signal – again unsurprisingly – GOP opposition should Sarah Bloom Raskin be nominated….

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

12 01, 2022

FedFin Forecast: Prudential Regulatory Framework Set for Structural Change Largely Built on Current Standards

Arezou Rafikian2023-04-24T15:49:23-04:00January 12th, 2022|The Vault|

As promised, FedFin begins our 2022 forecasts with this in-depth report on bank regulation. In general, we conclude that the context of decisions in 2022 and beyond will shift from a focus on tailoring efficiencies and burden relief to one emphasizing risk mitigation, fairness, equity, and — for the very biggest banks — a smaller systemic footprint. This report looks at the impact of pending personnel decisions as well as the outlook for climate-risk, new capital rules, FBO standards, and other key issues….

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

11 01, 2022

FedFin Assessment: Powell Sidesteps Many Challenges, Promises Much

Arezou Rafikian2023-04-24T15:54:45-04:00January 11th, 2022|The Vault|

As promised yesterday (see Client Report FEDERALRESERVE66), we listened closely today to gauge the extent to which Chairman Powell faces a serious challenge to reconfirmation. At least as far as Senate Banking Members are concerned, he doesn’t. Although Sen. Warren (D-MA) and other Democrats lambasted Mr. Powell over insider-trading allegations and what they called the Fed’s unresponsiveness, all still were cordial and seemed generally to blame the problem on institutional failures, not the chairman. Sen. Menendez (D-NJ) called the Fed’s diversity policy “outrageous,” but also does not seem inclined….

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

10 01, 2022

Karen Petrou: Senate Banking’s CBDC Questionnaire

Arezou Rafikian2023-04-25T14:04:57-04:00January 10th, 2022|The Vault|

It’s certain that Jay Powell’s confirmation hearing will put him through the wringer on inflation, equality, “insider” trading, and the rules he’ll foster under the new vice chair for supervision. This is enough to try even the most patient of souls, but there’s another issue senators should be sure to raise: what’s taking the Fed so, so long to start its CBDC deliberations, let alone conclude them?

After initially dismissing the need for a U.S. central bank digital currency, Chairman Powell announced last May that the Board would seek public comment sometime that summer. At about the same time, Gov. Brainard spoke about a possible CBDC construct and the Boston Fed announced a technical build-out project along with the Massachusetts Institute of Technology. The Federal Reserve Bank of New York’s Innovation Hub also has CBDC ambitions. Although Fed officials were quick to point out that none of these nor any of the subsequent high-profile papers commits the Fed to anything, work seemed well under way to join the dozens of other central banks convinced that CBDC is essential in the quick-digitization payment future clearly emerging outside the reach of central bankers.

What’s happened since the summer CBDC storm? Not much.

Mr. Powell and other Fed officials at one point promised that the CBDC paper would come in September, but autumn came and went. The Fed’s certainly been busy tidying up after its “transitory” inflation goof and ongoing macroeconomic challenges, but it neglects CBDC at its and our peril.

First, whether …

1 12, 2021

FedFin: HFSC Throws Partisan Brickbats without Financial-Policy Impact

Arezou Rafikian2023-05-23T14:19:51-04:00December 1st, 2021|The Vault|

Continuing the partisan and often-acrimonious tone of the Senate Banking hearing (see Client Report FEDERALRESERVE64), HFSC today heard from Chairman Powell and Secretary Yellen. Much of the session was preoccupied by differing views of whom or what is to blame for inflation, with Members also squaring off on the benefit of the BBB and infrastructure bills. Many financial-policy priorities were sidelined by these big-picture battles, with the session omitting discussion of topics such as digital currency, bank consolidation, and even fair lending and diversity.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

8 11, 2021

Karen Petrou: When Economic Theory Meets Political Reality

Arezou Rafikian2023-06-01T14:58:22-04:00November 8th, 2021|The Vault|

In a thought-provoking column on Friday, former Federal Reserve Bank of Minneapolis President Kocherlakota asked if the Fed is playing politics with interest rates. As he points out, this is a troubling prospect, albeit wholly an unproven one. What doesn’t need proof, though, is that interest rates are playing a deadly game with politics. Last Tuesday, economic theory met political reality in yet another collision in which voters made it at least as clear as they did in 1980 that they won’t put up with low rates if they lead to high prices and the economic inequality it exacerbates. The Fed has a profound, albeit de facto, fiscal role. Failure to reckon with it poses risks not just to Democratic officeholders, but also to the Fed itself.

Last July, Jay Powell emphatically rebutted a Member of Congress who asked him about my view that the Fed has dramatically, if inadvertently, increased income and wealth inequality. Then as before and after, the Fed chairman asserted that economic inequality is wholly an artifact of fiscal policy. At his press conference on Wednesday, he did express sympathy for those dealing with high prices, but he still insisted that policy relief is beyond the Fed’s reach as stipulated in its statutory mandate.

Later this month, I’ll present a paper showing that the Fed’s full statutory mandate requires attention to the “general welfare” and other equality drivers. I’ll also lay out how seemingly pure monetary policy has become a real, dominant fiscal power by …

4 10, 2021

Karen Petrou: How to Ensure Equitable Fed Intervention in the Crisis Next Time

Arezou Rafikian2023-07-05T15:57:30-04:00October 4th, 2021|The Vault|

With her unerring instinct for the jugular on which media thrive, Sen. Warren on Tuesday called Jay Powell a “dangerous man.” This promptly sent many into still more feverish speculation about the Fed’s next chairman, blotting out coverage of an even more consequential development in the House: Democratic plans to rewrite the Fed’s powers in the next financial crisis. Last week, I pointed to the political price for Mr. Powell’s renomination: the Omarova appointment. A structural one with even more lasting impact is the rewrite of the Fed’s emergency-liquidity powers to, as Democrats demand, end backstops for “Wall Street” in favor of Fed facilities for everyone else.

Although little noticed, HFSC Chairwoman Waters on Thursday said for the second time in as many weeks that “Our committee is committed to ideas to ensure that facilities like these [the Fed’s in 2020] can more directly support workers and small businesses as well as state and local governments the next time there is a crisis.” Holding fire on Mr. Powell, Senate Banking Chairman Brown also targeted Fed support for Wall Street in his opening statement on Tuesday. This follows an inconclusive HFSC hearing a week or so ago on just what these new facilities might look like but make it clear that an array of reforms is under active consideration.

Importantly, these demands for people-focused facilities aren’t an isolated case of progressive pique. After the 2008 crisis, there was much bipartisan ire over whom the Fed helped how. This led to a …

27 09, 2021

Karen Petrou: The Powell Political Calculus

Arezou Rafikian2023-08-03T10:18:53-04:00September 27th, 2021|The Vault|

Although the quadrennial kerfuffle over appointment of the Federal Reserve chair gets a good deal of public attention, I cannot recall a time when anyone outside banking’s inner circles cared much about who might be the next Comptroller or Vice Chair of Supervision. And, although they’ve garnered more attention of late in the diversity context, Federal Reserve presidencies were of even less public interest. Not only are all of these appointments now proving remarkably consequential, but they also pose a particularly thorny political equation for President Biden.

While all of these finance appointments are significant, that for Jay Powell as Fed chairman is of course the most important of them all. Although key lips are publicly zipped, Treasury Secretary Yellen would like to see Mr. Powell’s reappointment as would a host of other high-impact Democratic influencers. The plethora of coverage suggesting global financial markets will collapse if Mr. Powell is deposed peddle patent nonsense, but nonetheless signify the stakes some assign to his cause.

Despite this formidable support, the Powell reappointment was still proving difficult even before the Reserve Bank stock-trading disclosures. As I noted at the time, it’s a lot easier to understand individual financial bets than monetary-policy complexities. It’s thus unsurprising that Mr. Powell’s latest concessions are proving far from satisfactory to an array of high-impact Democratic influencers very emphatically not to be found on Wall Street. One of Mr. Powell’s strengths in the renomination battle has been divisions among Democratic progressives, making this resonant scandal particularly …