Federal Reserve chair, Jerome Powell, visited the Dallas Federal Reserve yesterday to cap the Dallas bank’s Global Perspectives series. Aside from pontificating about global economic perspectives, the meeting between Robert Kaplan and Jerome Powell was insightful for many reasons. Kaplan reminded the audience of Powell’s policy experience which includes time as partner at private equity firm the Carlyle Group. Listening to a Goldman Sachs alum toss softball questions to a Carlyle alum is one way, I suppose, to placate a concerned public that the economy is still healthy and the Fed is on the ball, you know, just like Bernanke was on the ball back in 2006.
While the Dallas-Fort Worth real estate market looks poised to roll over, Powell told the audience that he was very happy about the state of the U.S. economy. “I am very happy about the state of the economy.”
Powell was also there to remind the audience that the Federal Reserve policies, while exacerbating wealth and income inequality on a vast scale during the last decade, are at least partially responsible for the wonderful economic boom we are experiencing. “Our policy is part of the reason why the economy is in such a good place right now.”
Speaking on the Federal Reserve’s balance sheet normalization, Jerome Powell is pleased with the efforts to reduce the Fed’s Wall Street backstop/balance sheet (aka colossal mistake to supplant real price discovery and economic fundamentals). “We were concerned in the run-up to announcing it that there would be a strong market reaction and tightening of financial conditions, more than we would like or respect. That hasn’t happened.”
Speaking on the stagnation in 2018, Powell mentioned that there are some signs of softness. “You still see solid growth, but you see kind of growing signs of a bit of a slowdown, and it is concerning.”
Like any good central banker, Powell also trotted out the standard boilerplate Fed PR reminding the crowd of why Fed bankers earn those inflated paychecks. “Our mandate is for U.S. economic conditions, stable prices, maximum employment and financial stability.” Something tells me if we get any more of that “stability”, there are going to be a lot of real estate agents looking for a new line of work again.
Speaking on the financial instabilities that led to the 2008 crisis, Powell mentioned that they have built an entire division on financial stability. “People didn’t see this coming. They didn’t see the vulnerabilities. Well, we see them now. We found out the hard way.”
Powell admitted that the U.S. is on an unsustainable fiscal path, yet this hasn’t affected the Fed’s job. “Fiscal unsustainability hasn’t really affected our job.”
Powell doesn’t think you need to be concerned about central bank operations in your daily lives. “Central banking can be pretty far from people’s daily lives, and can be something that they can, and probably should, go on leading their lives and not know a heck of a lot.”
Speaking about supposed misconceptions regarding Federal Reserve operations, Powell is under the delusion that the Fed effectively represents the public’s concerns. Powell thinks the Fed currently has very diverse perspectives from its members. “The fact that we have 12 reserve banks around the country with 12 economics faculties, it pretty much guarantees that we will have a diversity of perspectives at all of our meetings.” You know, because there’s nothing like an echo chamber of elitists and millionaires to harness that “diversity”.
If nothing else, with his Dallas Fed interview, Mr. Powell confirms that nothing has really changed with Fed policy. The Fed’s central bankers and economists are still oblivious to the concerns of the bulk of Americans (aka those who are not millionaires). This should come as no surprise. When your only tool is a hammer, every problem looks like a nail. If you are cut from the cloth of Wall Street and private equity, the hammer might as well be gold plated. It’s worth remembering that Powell is one of the richest members of the Federal Reserve in modern history. He grew wealthy working at the Carlyle Group, a well-connected private equity underwriter. Expecting Powell to look after his Wall Street peers is not a difficult stretch.
But don’t fret. Mere mortals should not worry about trivial things like central bank policy, even though your retirement and standard of living are going to be affected by it. As Robert Kaplan revealed to the audience, those who were listening for subtext anyway, the “primary goal is to extend the expansion.” And work to expand it I’m sure they will. Wall Street needs an ever-growing supply of debt slaves to pad the annual bonus pool.