Saturday, December 4

Powell anticipates that he will begin reducing stimuli this year if nothing interrupts the recovery.


The Fed will wait to raise benchmark interest rates from their current levels of 0-0.25%, and not react to inflationary pressures

Jerome Powell, Chairman of the Federal Reserve
Jerome Powell, Chairman of the Federal ReserveSUSAN WALSHAP

Back to normal … in case someone remembers what “normal” was. The Chairman of the Federal Reserve he hasannounced this Friday that it will begin this year to withdraw the extraordinary monetary stimuli – that is, the purchase of public and mortgage debt – launched in 2020 to combat the effects of Covid-19. It is a sign that, despite the dislocation of economic activity that the Delta variant is causing, America’s economy is returning to something more “normal”.

This week there have been more signs of normalcy. Yesterday, Thursday, the Supreme Court of the United States declared illegal the extension of the moratorium on the payment of rent established in April 2020 and extended last month by the Government of Jie Biden. The decision is based on a technical issue: according to the Supreme Court, the Executive (that is, Biden) has no competence to carry out this measure, which is the responsibility of Congress. But it seems unlikely that all Democrats in Congress will vote on that measure.

And, in a sign that things are going back to the way they were before, The Federal Reserve will grab headlines this week for the succession of its chairman, Jay Powell, whose term ends in February 2023. The left wing of the Democratic Party wants Joe Biden not to renew Powell’s term, but Treasury Secretary Janet Yellen has advocated that the Fed chair continue another five years .

It is an incredibly generous decision on the part of Yellen, who was Powell’s predecessor at the head of the Fed until Donald Trump decided to replace it with the current head of the central bank, a Republican like him. The reason for Trump’s refusal to give Yellen a second term was typical of the former president. “It’s about making my mark” on the Fed, he said. Pure ego.

Trump’s ego issue also has political consequences and economic, because the chairmanship of the Federal Reserve seems to have become a position that can only be held by Republicans. When Powell’s term ends, that post will have been in the hands of Democrats in just 12 of the last 44 years. The selection of 1979 as the time to start this count is not arbitrary. It was in 1979 when the Federal Reserve began to have its current operations, marked by the independence of the political power (to a certain extent) and the fight against inflation.

The fact that the leadership of the world’s largest central bank is almost the exclusive preserve of one party is, in part, a consequence of excellent public relations policy. Many associate the defeat of hyperinflation in the United States with Ronald Reagan, but it was Democrat Paul Volcker – along with Yellen, the only member of that party to lead the Fed in these four and a half decades – who did it. That idea has gone hand in hand with another: the mission of the Federal Reserve is to make the financial markets do well. The rest of the economy doesn’t matter.

In fact, that’s the idea behind the ongoing normalization of the economy. The extraordinary measures of the ‘Fed’ against the Covid helped fixed and variable income, and now it seems that the only objective of the central bank is not to cause tensions in the financial market. Normality is, above all, for financial markets. The others, we can wait.

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