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Tag: jerome powell

Fed Chairman Warns Of 'Severe Damage' If Republicans Force Debt Default

Washington (AFP) - The chairman of the US Federal Reserve called on lawmakers to raise the nation's borrowing limit urgently on Wednesday, warning that failure to pay government debts would do "severe damage" to the economy.

"It's just very important that the debt ceiling be raised in a timely fashion so the United States can pay its bills when it comes due," Jerome Powell said as the central bank concluded its September meeting. Failure to pay, he added, is "just not something we can contemplate."

Powell's admonition came after six former US Treasury secretaries also urged the Senate to overcome the impasse "without delay" to avoid the harmful fallout should Washington default on its debt.

However, the plea for quick action looks set to fall on deaf ears, as the opposition leader in the Senate has steadfastly refused to cooperate with the ruling Democrats to increase the debt ceiling.

That could lead to chaos in financial markets, officials have warned.

The Democratic-controlled House of Representatives passed a measure that would suspend the debt limit until after next year's midterm elections and fund government operations until December 3.

But it is now stuck in the Senate, which has until September 30 to take action to avoid a shutdown and a second deadline of mid-to-late October to suspend the debt ceiling.

Powell warned that "no one should assume that the Fed or anyone else can protect the markets or the economy in the event of a failure" by the United States to service its debts.

And the group of former finance ministers -- who served under presidents Jimmy Carter, George W. Bush, Bill Clinton and Barack Obama -- said in a letter to congressional leaders of both parties that even a short-lived default could threaten economic growth.

"It creates the risk of roiling markets, and of sapping economic confidence, and it would prevent Americans from receiving vital services," they warned.

"It would be very damaging to undermine trust in the full faith and credit of the United States, and this damage would be hard to repair," according to the officials.

They said protecting the "unshakeable creditworthiness" of the United States "is a sacrosanct responsibility."

'Different This Time'

But Republican Senate leader Mitch McConnell continues to use the debt limit as a political bludgeon to protest President Joe Biden's spending plans -- although he argued in favor of increasing the cap under former president Donald Trump.

"If Washington Democrats want to jam through trillions of dollars and reckless spending all by themselves, they can raise the debt limit, all by themselves," he said on the Senate floor Wednesday.

Under Trump, the ceiling was suspended for two years, but was reinstated on August 1 with debt at $28.4 trillion.

The debt deadline looms as Democrats are hoping to secure a sweeping $3.5 trillion social policy package on a party-line vote, without dealing with Republicans.

That bill is itself bogged down in the usual morass of internal rivalries, however, with moderates nervous about the high ticket price, and progressives demanding the deal is in the bag before they will consider other spending priorities, such as infrastructure.

Biden invited two dozen lawmakers from the warring center and left wings to the White House Wednesday in a bid to forge a united front on the package, which would make for the largest single federal spending spree in US history.

"People wonder why is it different this time, given the fact that over the last 80 years the debt ceiling has been raised 98 times," Senate Republican Conference chairman John Barrasso told a news conference.

"Well, it's different this time because the Democrats are doing all of the spending. They're proposing trillions and trillions of additional spending without a single Republican vote."

Senator Mike Lee accused the Democrats of trying to "have their cake and eat it, too" by demanding a bipartisan debt ceiling increase rather than just going it alone.

"They've got the votes to raise the debt ceiling, if that's what they want to do. They don't want to do it without Republican votes," he said.

"Interestingly, however, they're just fine dumping three and a half trillion dollars on the American economy without a single Republican vote."

In Debt-Limit Impasse, Federal Reserve Will 'Come Out Swinging'

By Ann Saphir

(Reuters) -Treasury Secretary Janet Yellen says failure to raise the U.S. debt limit could lead to the unthinkable: a default on government payment obligations. That's an outcome the White House on Friday warned could plunge the economy into recession.

If the impasse in Congress over the $28.5 trillion debt limit isn't resolved before an October deadline, what would the Federal Reserve - the backstop for U.S. financial markets as the lender of last resort - be prepared to do?

As it turns out, Fed Chair Jerome Powell may already have something of a game plan. The country faced a similar crisis over the debt limit in 2011 and again two years later, and at an unscheduled October 2013 meeting, Fed policymakers - including Powell, who was then a Fed governor, and Yellen, who was the Fed's vice chair - debated possible actions in response.

'Loathsome' was how Powell described some of the most aggressive options contemplated, transcripts show, though he was among those who said they might be needed in the face of what could be a drastic market catastrophe

The plan included a process for managing government payments, given the Fed's expectation that Treasury would prioritize principal and interest but would make day-by-day decisions on whether to cover other obligations.

Changes to the Fed's supervision of banks were also planned. Banks would be allowed to count defaulted Treasuries toward risk-capital requirements, and supervisors would work directly with any bank experiencing a "temporary drop in its regulatory capital ratio." The U.S. central bank would also direct lenders to give leeway to stressed borrowers.

Policymakers also mapped out approaches to managing market strains and financial stability risks stemming from a technical default.

They readily agreed to some measures, including expanding ongoing bond purchases to include defaulted Treasuries, lending against defaulted securities and through the Fed's emergency lending window, and conducting repurchase operations to stabilize short-term financial markets.

Other actions sketched out in briefing notes and during the meeting were more controversial, including providing direct support to financial markets buying defaulted Treasury securities, or simultaneously selling Treasuries that are not in default and buying ones that are.

It was those last actions that Powell described as "loathsome," while others referred to them as "repugnant" and "beyond the pale." The issue, transcripts suggest, was the worry that such purchases could be seen as crossing a line into direct financing of government.

"The economics of it are right, but you'd be stepping into this difficult political world and looking like you are making the problem go away," Powell said at the time.

A larger number of policymakers, including Yellen and John Williams, who at the time was San Francisco Fed president and is now head of the New York Fed, felt that such an intervention ought to be part of the U.S. central bank's response if needed. Even Powell agreed it might need to be "under certain circumstances."

Congress resolved the debt limit impasse in 2013 and the Fed never had to activate its game plan. Since then it has managed through a number of crises, including the coronavirus pandemic, to which it responded aggressively and with never-before-used tools like purchases of municipal debt. "We crossed a lot of red lines that had not been crossed before," Powell said in an interview in May 2020.

Analysts say that the Fed helped stave off a financial crisis and an even worse economic downturn.

Christopher Russo, a post-graduate research fellow at the Mercatus Center at George Mason University, says the Fed's experience may color how it responds to future crises.

"The lesson learned is: if they are going to do something, come out swinging," he said.

(Reporting by Ann SaphirEditing by Paul Simao)

Why I’m Not (Very) Worried About Inflation

For a long time, inflation has been the phantom of the American economy: often expected but never seen. But the latest Consumer Price Index, which showed that prices rose by five percent from May of last year to May of this year, raises fears that it is breaking down the front door and taking over the guest room.

The price jump was the biggest one-month increase since 2008. It appears to support the warning of former Treasury Secretary Larry Summers, who wrote in February that President Joe Biden's budget binge could "set off inflationary pressures of a kind we have not seen in a generation." Senate Republican leader Mitch McConnell charged last month that the administration has already produced "raging inflation."

For anyone who lived through the turbulence of the 1970s, when the CPI climbed year after year, peaking at a rate of more than 13 percent, the specter of inflation is enough to induce night terrors. One of the great governmental marvels of the past 40 years was the Federal Reserve's complete conquest of this malady. To let it return would be a grievous setback.

There are reasons to think that could happen. The Fed has pumped huge sums of money into the economy to offset the effects of the pandemic, and the Biden administration got Congress to approve a huge economic relief package. Americans saved a lot over the past year, and if they decide to burn through all that cash, they could push prices still higher.

At this point, though, watchful concern is a more appropriate attitude than outright alarm. For now, I'm not worried — not very worried, anyway — about inflation.

Why not? One reason is that a spike in prices is not inflation any more than a stretch of rain is Noah's flood. It's no surprise that prices in May were appreciably higher than a year earlier — when much of the economy was shut down because of the pandemic.

Prices will keep going up as life continues to return to normal and Americans rush to spend money on all the things they missed because of COVID-19. Lingering supply chain snarls will put additional pressure on prices. But this should be a one-time phenomenon. Inflation is not inflation unless it persists over months and years.

Another reason for optimism is that even when it was trying to raise the inflation rate, during and after the Great Recession, the Federal Reserve found it remained stubbornly low. The central bank's monetary expansion should have brought about the higher inflation it sought. But it didn't — suggesting that something has changed about the connection between the money supply and consumer prices.

Back then, conservative critics forecast an outbreak of inflation caused by easy money and excessive federal spending. In 2009, economist Arthur Laffer wrote, "We can expect rapidly rising prices and much, much higher interest rates over the next four or five years." Sen. Rand Paul (R-KY) said Americans should be "prepared to carry money to the grocery store in a wheelbarrow."

Let's hope their hallucinations have subsided. If those policies didn't cause inflation then, they may not cause it now. Stable prices have become the intractable norm over the past quarter-century, for reasons we don't fully understand. Loose fiscal and monetary policies don't seem to matter the way they once did.

One danger is that the recent price increases will fuel inflationary expectations, prompting businesses to raise prices and workers to demand higher wages, setting off a self-perpetuating upward spiral. But what inflationary expectations are we talking about?

Data compiled by the Federal Reserve Bank of St. Louis indicate that, as of June 10, the expected inflation rate over the next five years is just 2.23 percent. Interest rates on 30-year mortgages have fallen below three percent, compared with nearly five percent in 2018.

Given their performance over the past 13 years, it's not unreasonable to believe that the Federal Reserve officials who set monetary policy actually know what they're doing. When the pandemic hit, the economy was well into the longest peacetime expansion ever — and inflation was still subdued.

Fed Chairman Jerome Powell and his colleagues have earned the benefit of the doubt. They haven't forgotten the trauma of the 1970s, and they don't want to go down in history as the people who brought it back.

When prices jump, vigilance against inflation is entirely justified. But we should also watch out for false alarms.

Steve Chapman blogs at http://www.chicagotribune.com/news/opinion/chapman. Follow him on Twitter @SteveChapman13 or at https://www.facebook.com/stevechapman13. To find out more about Steve Chapman and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

Federal Reserve Expected To Maintain Low Rates Despite Rising Prices

Washington (AFP) - Even in the face of rising inflation, the lackluster progress on restoring jobs lost during the pandemic means the US Federal Reserve is unlikely to budge on monetary policy when it meets next week. Central bank chief Jerome Powell has made it clear the Fed will hold the line on its massive bond buying program and rock-bottom lending rates until data reflect lasting improvement in employment across all economic strata. But the recent surge in inflation in the world's largest economy is ramping up the pressure on policymakers to begin to pull back on stimulus programs. Hints ...

Fed Chair Predicts Imminent Boom, Credits Biden

Reprinted with permission from American Independent

Federal Reserve Chair Jerome Powell said Sunday that the economy is likely about to boom, big time. And he credited two of President Joe Biden's efforts for that progress.

On CBS News' 60 Minutes, Powell observed that the economy appears to be at an "inflection point."

"We feel like we're at a place where the economy's about to start growing much more quickly and job creation coming in much more quickly," he said, noting, "we and a lot of private sector forecasters see strong growth and strong job creation starting right now. So really, the outlook has brightened substantially."

Powell was picked for the job by Donald Trump in November 2017. As he announced the nomination at a Rose Garden event, Trump called Powell "strong," "committed," and "smart," saying, "I am confident that with Jay as a wise steward of the Federal Reserve, it will have the leadership it needs in the years to come."

But after praising Powell's "integrity and good judgment," Trump largely ignored Powell's advice and savaged him as an "enemy" of America.

From the early days of the coronavirus pandemic, Powell warned that it could be a major economic threat. "We are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy," he said in February 2020.

Trump responded by pretending the problem would go away and continuing to attack Powell.

In October, Powell urged more congressional action to address the crisis and its economic fallout, and renewed efforts to curb the virus' spread.

"Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses," he told the National Association for Business Economics. "By contrast, the risks of overdoing it seem, for now, to be smaller."

He cautioned that "COVID-19 cases might again rise to levels that more significantly limit economic activity, not to mention the tragic effects on lives and well-being. Managing this risk as the expansion continues will require following medical experts' guidance, including using masks and social-distancing measures."

Trump instead halted all negotiations on a COVID-19 relief package and continued to promote an unsafe immediate reopening of the economy. Cases spiked to an all-time high and the recovery slowed.

Since taking office, Biden has focused on vaccinating everyone and passing massive economic relief. Powell credited both on Sunday for the improved economic situation, saying it was "because of widespread vaccination and strong fiscal support, strong monetary policy support."

After Trump promised in the 2020 campaign to vaccinate just 200,000 people a day, Biden pledged to get that number up to 1 million a day for the first 100 days of his administration. He has far exceeded this goal and CNN reported Monday that at the current pace, half of U.S. adults could be at least partially inoculated by the end of the week.

Powell also expressly praised the pandemic relief bills, saying without them things "would've been so much worse." While some of the bills were bipartisan efforts under Trump, congressional Republicans refused to even consider a House-passed $3 trillion relief package for most of 2020 and unanimously opposed Biden's $1.9 trillion American Rescue Plan.

Powell noted that his colleagues are forecasting "growth for this year in the range of six or seven percent, which would be the highest level in, you know, 30 years — or even maybe a little bit higher."

Trump promised growth of "four, five, and maybe even six percent ultimately" but failed to achieve even four percent growth for any year of his presidency.

Experts predict that growth could be even better if Congress enacts Biden's $2.25 trillion American Jobs Plan. A recent Georgetown University Center on Education and the Workforce analysis suggested an infrastructure bill around that size could boost GDP by up to $320 billion annually.

Published with permission of The American Independent Foundation.

How Fed Bailout Greased A Top Treasury Official’s Family Financial Firm

Reprinted with permission from ProPublica.

Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin have become the public faces of the $3 trillion federal coronavirus bailout. Behind the scenes, however, the Treasury's responsibilities have fallen largely to the 42-year-old deputy secretary, Justin Muzinich.

A major beneficiary of that bailout so far: Muzinich & Co., the asset manager founded by his father where Justin served as president before joining the administration. He reported owning a stake worth at least $60 million when he entered government in 2017.

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Fed Chair Predicts Depression-Level Unemployment

Federal Reserve Chair Jerome Powell has painted a grim picture of the future of the United States economy, saying that the coronavirus-fueled unemployment rate could climb past levels seen during the Great Depression, and that the economic recovery will be more uneven and slower than Donald Trump has claimed.

Powell made the comments in an interview with "60 Minutes" that aired Sunday night, Asked whether he thought 25 percent could be the peak unemployment rate in the United States in the next few months, Powell responded, "I think there're a range of perspectives. But those numbers sound about right for what the peak may be."

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Fed Slashes Interest Rates To Zero In Effort To Bolster Economy

The Federal Reserve announced Sunday that it will drop interest rates to zero while purchasing at least $700 billion in government and mortgage bonds as part of its emergency program to shore up the US economy in the face of an economic halt caused by the coronavirus outbreak. Its announcement represented the strongest action since the 2008 financial crisis as the central bank sought to stabilize financial markets as businesses close down and the economy confronts a looming recession.

Led by chair Jerome H. Powell, the Fed cut its benchmark by a full percentage point to zero.

Aside from rate cuts, the Fed also announced the resumption of bond purchases known as “quantitative easing,” with the central bank buying hundreds of billions of dollar in bonds to lower interest rates and maintain liquidity. The Fed will also offer generous loans to commercial banks, enabling them to offer loans on easy terms to small businesses and families in need.

IMAGE: Federal Reserve chair Jerome Powell, REUTERS/Carlos Barria