This is a re-post from a few months ago. Traveling this week. Many articles are surfacing concerning Fed Chair J Powell and his dilemma on whether to cut interest rates or not. This article has the answer. Problem solved…Bill Taylor
OK. Fired might be a touch harsh. How about ‘canned?’ Nope, way too harsh.
Let’s go with the tried and true, Chairman Powell is choosing to step down to spend more time with his family. No matter what you choose to call it, Chairman Powell may very well be on his way out before November.
Why would that be, I’m sure you asked. Well, Chairman Powell has himself in a bit of a pickle. Having been lulled into the “inflation is transitory dream,” he finally realized that the Fed had to do something. So Chair Powell raised interest rates rapidly and has succeeded in getting inflation down to 3.5% , but way short of his goal of 2% (yeah, I know there are several ways to gauge inflation, but it’s still a big problem). With the economy still relatively robust (??) and inflation picking up again, the Fed may have to raise rates again.
Of course, should the Fed even consider raising rates it will cause an uproar from the “entitlement crowd.” “Entitlement crowd?” Yup. That’s the group that has been crying for, and banking on, the Fed to lower interest rates. That started with demands for six cuts this year and now is down to hoping for at least one. Why? Just because investors had become used to zero interest rates over the past years doesn’t mean the financial sector is entitled to lower rates. It does, however, create a huge problem for J. Powell.
So, as the year ticks on and the November elections become closer, expect the financial markets to become politicized………….no, more politicized. Which brings us to J. Powell.
Imagine, if you will…..shortly before the election, the Chairman gets a call form the White House. The President would like a meeting. The President gives Powell an option; cut interest rates or be fired.
Now what? Chairman Powell considers;
- If he cuts interest rates, inflation could roar back. Sure financial markets may rally, the current President may get re-elected, BUT does he want his legacy to be the “guy who stocked massive inflation?” However, he keeps his cushy job.
- He tells the President that it “would be unwise” to cut rates and the President fires him.
- The Chairman considers the options and realizes if he cuts rates and a new President is elected he will be replaced, but he keeps his job for a few more months.
- If he doesn’t cut rates he has lots of family time immediately. A new President would fire him anyway. His legacy would say he fought the politics to preserve the Fed’s independence. Hmmm, wonder what the wife has for dinner?
What would the Fed Chair do? Lets start the “over/under” on J. Powell’s replacement.
Sadly, Paul Volcker is unavailable.
Bill Taylor is the CEO of Digital Wealth News™ and AI & Finance™ and a 40+ year veteran of the financial markets. You can also ready his weekly musings on BTC, ETH, Gold & S&P500 at The Taylor Market Report.
