Powell And Yellen – Team Fed

Flashback 11/21/2017:

“President Trump nominated Jerome H. Powell as the new Chairman of the Federal Reserve Bank. Don’t look for much to change. And Janet Yellen’s announcement that she will resign from the board upon Mr. Powell’s induction as board chair is pretty much a non-event.” (see New Fed Chairman, Same Old Story)

Currently, comments by Jerome Powell last week regarding inflation and its effects spooked some investors and analysts.  Investors in leveraged Treasuries were dealt a severe blow when yields spiked and bond prices fell. Others have claimed that the sky is falling and that inflation is all around us.

Chairman Powell said that as the economy improves, it “could create some upward pressure on prices” but that the effects would likely be transitory. 

Treasury Yellen likes the word transitory. Five years ago, when she was Federal Reserve Board Chair, she referred to a slowdown in the job market as likely “transitory”.

A year later, in 2017, in reference to concern that the effects of inflation remained weak, she said “My colleagues and I are not certain that it is transitory, and we are monitoring inflation very closely,”

LOTS OF POSSIBILITIES

As it is now, Treasury Secretary Yellen appears to feel similarly to Fed Chairman Powell. When she was asked about volatility in the financial markets over the past two weeks, she said that rising interest rates are a sign that prospects for the economy are starting to improve.

That is a possibility. It is also a possibility that interest rates could move higher and that the economy wouldn’t improve; and that the effects of inflation get a lot worse. Or, rates could move much higher in tandem with a credit collapse resulting in deflation and another Great Depression. (see A Depression For The 21st Century)

In our real-life Fantasy Financial League, there are two quarterbacks – Powell and Yellen. As much as they are striving to keep the team out of the basement, their efforts seem futile.

THE FED – PROMISES, PROMISES

They tell us it will be better next year, but they they have been telling us that for most of this century. They also promised us that things wouldn’t get worse; but they did.

Treasury Secretary Yellen told us when she was still Board Chair at the Federal Reserve that “another financial crisis is unlikely in our lifetime because of the measures the Fed has taken”.

Was what happened last year not a financial crisis?  Of course it was; and a lot more.

“Regardless of Covid-19, a lack of fundamental underpinnings had left the stock market extremely vulnerable to a selloff of considerable magnitude, regardless of the specific trigger event.” (see Fed Action Accelerates Boom-Bust Cycle  – Not A Virus Crisis)

Team management has even admitted some of their mistakes in the past (“Fed caused Great Depression” – Bernanke).

Nevertheless, it is late in the fourth quarter and we are way behind. And there is no air in the ball.

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