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Monday, December 09, 2019

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Biden's Federal  Reserve Nominees Come Under Right-Wing Attack

Washington (AFP) - Though set up as an institution operating above the partisan fray in Washington, the Federal Reserve has again become a political football, with Republicans and business groups attacking President Joe Biden's nominees to serve on the central bank's board.

Biden last month announced a slate of candidates who would at long last fill all the seats of the seven-member board, and include the first Black woman to hold the position since the Fed was founded 108 years ago.

If all three are confirmed, the majority of the board members would be women for the first time, and most would be named by a Democratic president.

Critics say the choices threaten to inject a political slant into the Fed's management of the economy just as it pivots to fighting inflation, which threatens to undermine the recovery from the Covid-19 pandemic.

But economists and Fed watchers say the criticisms are unfounded and in some cases racially motivated.

The Senate Banking Committee is scheduled to hold a hearing Thursday to consider the nominations of Lisa Cook, an economics professor at Michigan State University, who would be the first African American woman to serve as Fed governor.

Lawmakers will also consider Philip Jefferson, of Davidson College, who would be the fourth Black man to serve on the body.

For the powerful post of Fed vice chair for supervision, which oversees the nation's banks, Biden tapped Sarah Bloom Raskin.

She previously served as Fed governor and in a senior role at the Treasury Department under former president Barack Obama, as well as the top state bank regulator in Maryland. She is married to Rep. Jamie Raskin (D-MD).

Biden also renominated Jerome Powell to a second term as Fed chair, and named current board member Lael Brainard to serve as vice chair. They are awaiting Senate confirmation.

Race And Climate

The White House said the picks "will bring long overdue diversity to the leadership of the Federal Reserve."

But Senator Pat Toomey, the ranking Republican on the Senate Banking Committee, complained about a lack of "diversity" among nominees to the board, which does not have anyone from the energy industry.

His complaints, echoed by the US Chamber of Commerce, center on Raskin, charging she would be overly aggressive in focusing on banks' roles in fighting climate change.

She has called for the Fed to ensure financial institutions take climate risks into consideration, something Powell also endorses.

Toomey's concerns are the mirror image of opposition expressed by some Democrats to Powell's nomination for a second term at the helm of the central bank, who argue he is not focused enough on climate change.

Racially Motivated Attacks?

Conservative political commentator George Will has accused the Fed of being politicized, writing in a column that Cook's "peer-reviewed academic writings pertinent to monetary policy are, to be polite, thin."

However other board members, including Powell, are not trained economists.

"I just don't understand the backlash," said Diane Swonk, chief economist at Grant Thornton. "It just really seems to be pretty biased."

Cook and Jefferson have researched inequality in the labor market, a topic Powell has repeatedly highlighted as important, since the Fed works to ensure the benefits of economic expansions reach all parts of society.

Swonk called Cook a "phenomenal" candidate.

Biden's nominees "bring enormous depth to the Fed at a time when" the central bank is "finally acknowledging inequality and what it costs us," she told AFP.

Amid the attacks, the National Economic Association issued a statement supporting Cook and Jefferson, both past presidents of the organization, that called them "uniquely and exceptionally qualified."

Republican Support

David Wessel, senior fellow at The Brookings Institution and a longtime Fed watcher, dismissed the criticisms about qualifications, saying they impose a "double standard" on Cook.

"The whole point of having a seven-member Federal Reserve Board... is to represent a cross section of America," he told AFP.

"Nobody wants to have a Federal Reserve Board... that's all white guys who went to the same three Ivy League schools."

The nominees also have won Republican support.

Kevin Hassett, a top economist under former president Donald Trump, praised Jefferson as "exactly the type of economist who should be at the Fed at this difficult time."

Representative Patrick McHenry, the top Republican on the House Financial Services committee, which oversees the Fed in the lower chamber of Congress, highlighted Raskin's "long history of distinguished government service."

How Much Blame Does Biden Deserve For Inflation Woes?

President Joe Biden's standing with voters has taken a beating on multiple fronts. He is perceived as not focusing on issues they care about, particularly inflation.

Inflation is a president slayer. Richard Nixon imposed wage and price controls. When they were lifted, prices soared even higher. Would Nixon have been removed over Watergate if the economy had been better?

Gerald Ford issued red and white lapel pins proclaiming "WIN," which stood for "Whip Inflation Now." Inflation was unimpressed. Ford got whipped by Jimmy Carter in the 1976 election.

Inflation dogged the Carter presidency as well. Carter did eventually appoint a determined inflation hawk, Paul Volcker, to lead the Federal Reserve. He threw the nation into a recession by hiking interest rates. Ronald Reagan defeated Carter in 1980.

Does Biden deserve the blame for inflation? Not to the degree people are saying.

Senate Republicans held a press conference in July blaming the "insane tax and spending spree of President Biden and the Democrats for six straight months of raging inflation." In December, Sen. Mitch McConnell tweeted: "It is unthinkable that Senate Democrats would try to respond to this inflation report by ramming through another massive socialist spending package in a matter of days."

Whoa. Biden did pass a large COVID-19 bill early in his term, but the rest of the "socialism" Republicans are fulminating about did not pass.

Republicans are suddenly crying "socialism!" but let's be fair. While the government has been pumping money into the economy at a record clip over the past 14 years, most of that has been the work of the Federal Reserve, and former President Donald Trump was the most vociferous proponent of easy money we've ever seen.

Since the financial crisis of 2008, the Federal Reserve has been shoveling money out the door with pitchforks, and in the wake of COVID-19, both the central bank and the federal government have been "dropping money from helicopters," to use the image coined by Milton Friedman.

Many economists believe the Fed was right to do this as a response to the financial crisis of 2008. The controversy arises about when it was time to stop. Arguably, the Trump years were the right time. But that's not what the Trump-led GOP favored.

Trump's money gusher began in 2017 with the $1.9 trillion tax cut that wasn't matched with any spending cuts.

Trump appointed Jerome Powell to the Fed but quickly soured on him when he didn't increase the money supply quickly enough for Trump's taste. Powell was soon on the receiving end of Trump tweets. He argued that "we need rate cuts and easing" (exactly the opposite of what we needed).

If Republicans were worried about inflation, they might have spoken up about Trump's attempt to flood the economy with easy cash (to say nothing of eroding the norm about political influence on the Fed).

Then came COVID-19. Most people think the big federal cash infusion, the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act, was a necessary response to the emergency. It saved many from destitution. But that money, combined with the trillions of dollars of quantitative easing and near-zero interest rates over the past decade and a half, certainly set the stage for inflation. Congress passed an additional $900 billion in December of 2020 — which Trump signed — for a grand total of over $3 trillion in COVID-19 relief.

Again, all of this money sloshed into the economy before Biden took the oath of office.

Was it wise for Biden to pass yet another COVID-19 relief package, the $1.9 trillion American Rescue Plan, in 2021? I don't think so. But did it cause the inflation we're experiencing now?

The annual inflation rate for most things Americans buy was already at the highest level in a decade before Biden entered the White House. And inflation is global. According to the Organization for Economic Cooperation and Development, inflation among its 38 member states is running higher than at any point since 2008.

So, even if Biden is only partially responsible for the inflation we've got, there are steps he can take. One would be to remove the Trump-imposed tariffs, which are taxes that raise the price of goods to Americans. Another would be to promote more legal immigration. We are suffering a severe labor shortage in all areas. More labor would ease bottlenecks at ports and in transportation. Make keeping schools open a priority. Remote learning has been terrible for kids, and many parents cannot work if their kids are not in school.

Biden should forthrightly address what's on voters' minds. He's gotten tangled up in internecine fights with other Democrats over matters voters don't know or care about and that he can't even win. If they sense he's not really engaged in controlling the inflation menace, it could well do to him what it has done to other presidents.

Reprinted with permission from Creators.com

Massive December Job Growth Offers More Evidence Of 'Biden Boom'

The economy added 807,000 private-sector jobs in December, more than double what economists had forecasted, providing more grist for claims that President Joe Biden's American Rescue Plan is boosting economic recovery.

Economists polled by the Wall Street Journal predicted only modest gains of 375,000 jobs. But the ADP Employment Report, released Wednesday morning by the payroll company, signaled the economy's second-highest private jobs tally since May. Last month, private-sector jobs grew by 534,000.

The White House cheered on the news, pointing to the report as more evidence of a Biden economic boom."December was another month of strong private sector job growth," White House chief of staff Ronald Klain wrote on Twitter. "The American Rescue Plan has bolstered our economy, even in the face of COVID."

Robert J. Shapiro, a columnist for the Washington Monthly who worked as an economics adviser for both the Obama and Clinton administrations, wrote in December that few have noted the "Biden boom," even as Biden has overseen the largest real GDP growth rate in the century. During the first three-quarters of 2021, real GDP increased at almost eight percent annually, compared to an average rate of 2.2 percent growth from 2000 to 2019.

A December report from the Roosevelt Institute found that Biden's signature legislative accomplishment, a $1.9 trillion COVID stimulus bill passed in March called the American Rescue Plan, spurred massive job growth while protecting the economy from the pandemic's worst ill effects.

"We're entering 2022 in a position of a unique economic strength: Six million new jobs — a record number for a new President — have been created since January last," Biden said Monday. "Unemployment is down to 4.2 percent, three years ahead of predictions. New small-business applications are up over 30 percent compared with before the pandemic. And the fastest growth in America in nearly 40 years."

But Republicans continue to hammer Biden on the economy.

"Joe Biden just claimed the U.S. is "entering 2022 in a position of unique economic strength" GOP Chairwoman Ronna McDaniel wrote on Twitter Monday. "The facts: Inflation is highest in 39 years, job growth has stalled, and the supply chain is in crisis."

Some economic experts beg to differ, however. Federal Reserve Chair Jerome Powell, who was nominated by former President Donald Trump, cheered the falling unemployment rate in December, saying, "amid improving labor market conditions and very strong demand for workers, the economy has been making rapid progress toward maximum employment."

Published with permission of The American Independent Foundation.

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 ...

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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