Notes From Underground: Bye Bye, Jerome Powell

Early last week Senator Elizabeth Warren made her case against Chair Jerome Powell. In a Financial Times article, the senator blasted Powell for his light regulatory touch while praising the efforts of Governor Lael Brainard. Yet many believe Powell is a shoe-in to be reappointed Fed Chair (as much as an 85% chance at some sites).

It was Warren who killed off Larry Summers in 2013 along with her anti-Wall Street cronies at the time — Senators Sherrod Brown and David Vitters. It appears that Warren will block Powell and look to place Brainard in the chair position as she is on record as being a CONSISTENT promoter of easy money in an effort to run the economy hot so as it raises the situations for the lowest rungs of the economic ladder.


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Last year Brainard delivered three speeches on yield curve control prior to Powell shutting-down that discussion at Jackson Hole. The New York Times published a story citing with certainty that Brainard was to be President Biden’s Secretary of Treasury. (See? Even the Paper of Record gets knocked off its hubristic pedestal forecasting through the MUCK of Washington politics.)

There have even been the regular chatterers proclaiming it is unusual for a president not to reappoint a FED Chair when things are proceeding so well. Oh yes, President Trump replaced Chair Yellen in 2017 so, BYE-BYE Jerome. Wall Street has had a love affair with Powell as he admitted his mistake in the second half of 2018 and PIVOTED HARD TO KEEP THE MONETARY PUMPS at equity market speed beginning in January 2019. If you loved Jerome, you will adore Lael.

***Friday’s unemployment report delivered close to consensus, except for the RATE, which dropped an unexpected 0.5% to 5.4% from 5.9%. This was a dramatic decrease and sent tongues wagging that the FED will now be able to begin TAPERING by the end of this year. In response, the DOLLAR RALLY, PRECIOUS METALS CRUSHED, COMMODITIES DEPENDENT ON THEIR UNDERLYING FUNDAMENTALS and of usual outcome EQUITIES (HIGHER, except for the interest sensitive NASDAQ).

My concern is not that the markets performed in this direction but rather the analysis done at all the financial outlets is that the FOMC can now proceed with tapering. Zerohedge ran a piece with comments from six Wall Street financial analysts all proclaiming how the jobs report would allow the U.S. central bank to begin its move to reduce its asset purchases. All economists cited the AGGREGATE DATA but I posit this: Powell has not been talking about the aggregate JOBS data. He falls back into the “Ministry of Justice” position, decrying those who have lost their jobs and suffered diminished wages through NO FAULT OF THEIR OWN.

At Powell’s press conference the other week, he constantly discussed how he was concerned about BLACKS and HISPANICS being unable to return to a pre-Covid employment situation. Why is it that Wall Street analysts disregard the chairman’s concern about those at the bottom of the wage pool? Hypothetically: If aggregate unemployment is at 5%, but black and hispanic unemployment is at 9%, DOES THE FED TAPER? Remember, it has been Powell and Yellen who regularly cite REAL unemployment being closer to 9.5%. This jobs report was strong but not enough to change that data in a meaningful way.

If Powell’s concerns are so easily diminished then bring in a new FED chair. If it is Brainard, then the dovish outlook at the FED will prevail. Can a Biden White House entertain anything other position as massive amounts of national debt need to be financed with ever lower rates? It’s political economy not graduate finance at BOOTH.

***On Aug. 3, the St. Louis Fed published a blog post titled, “Dollar Exposure in the Public Debt of Asian and Latin American Nations.” Dollar debt has not grown as dramatically in Asia as it has in Latin America, a good outcome. The piece cited the Institute of International Finance that governments around the globe added $24 trillion to global debts to combat the deflationary effects of Covid.

This was only a small proportion in DOLLARS but it contributes to the massive debt load hampering the global financial system. This is what worries Hunt, Rosenberg, Shilling et.al.

The St. Louis Fed raises this concern, which we at NOTES has been pointing to: “Because economic conditions in the U.S. have improved significantly since last year and there are many signs of inflationary pressures, the situation in some emerging economies could become worrisome. If the FOMC … decides to raise interest rates at some future date, this could spark capital flight from emerging economies and thus depreciate their currencies.”

The noose tightens for a strong DOLLAR will create havoc on so many of the world’s most vulnerable economies. When does not fault of their own splash across the OCEANS? Those espousing an end to the global reflation trade due to FED policy pivoting be very cautious. All those in favor of a strong dollar raise your hands, otherwise keep the MUSIC PLAYING AND THE WALL STREET CROWD KEEP DANCING. Hey Joe, you may wish to change partners.

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