Jonathan Shapiro Senior reporter Aug 11, 2021 https://www.afr.com/markets/equity-...nard-over-powell-as-fed-chair-20210811-p58ht7 Macro experts believe US Federal Reserve chairman Jerome Powell will not be reappointed to the most important role in global monetary policy next February, but if they’re right, his likely successor will be welcome news for Wall Street. US-based strategists Larry Jeddeloh and John Fagan both predict Mr Powell’s term will not be renewed, paving the way for Lael Brainard to ascend from her role as a current member of the board of governors, they told a virtual forum hosted by UBS on Wednesday. “There’s been a big change in the wind,” said Mr Jeddeloh from TIS Group. His firm’s position on the next Fed chief was relatively new, and predicated in part on media comments made by Senator Elizabeth Warren. Mr Jeddeloh said the Democratic firebrand had form in opposing the appointment of Larry Summers to the Fed chairman role in 2013. Mr Fagan, who is a former senior Treasury staffer, said his firm, Markets Policy Partners, also “had a long-standing call” that Mr Powell would be succeeded by Dr Brainard. “The highly polarised environment in Washington DC forces decision makers to look at every position, even an independent position like the Fed chair, through a very politicised lens.” Senator Warren, he noted, sent a “clear message” in dissenting against the Fed decision to allow banks to return capital to shareholders. And Dr Brainard, he added, would have been a likely Treasury Secretary under Hillary Clinton, if she had won the November 2016 presidential election. “She is a far more dovish Fed chair than Fed chair Powell who isn’t exactly, you know, [a] sharp hawk,” said Mr Fagan. Truer dove An announcement on a Fed chairman appointment or renewal is typically made between August and November in the US. Mr Jeddeloh said if equity investors liked Jerome Powell, they’re going to "love Lael Brainard”. “She’s going to suppress rates. And there really isn’t going to be anywhere else to invest in terms of large pools of capital other than equities,” said Mr Jeddeloh. While there was clear evidence that inflation was not transitory, Mr Jeddeloh is of the view that long-term bond rates will fall significantly, and has contemplated a yield as low as 0.4 per cent on the 10-year Treasury bond, although that is not his central assumption. “I have trouble reconciling why the US, given the deterioration in the balance sheet should have a bond yield that is that much higher than a German bund,” he said. “I don’t want it to be negative. But I just think it’s too high.” He said the US would experience capital inflows until the bond market figured out that inflation was significant and long-lasting. “It’s not really accidental, it’s intentional. The way the Fed wants to reduce the debt pile is to actually inflate it away.” Mr Jeddeloh appeared bullish on the oil price, as his analysis suggested a transition to a fully electrified world will require a significant amount of both copper and oil. “We don’t have enough of either product at this price to electrify the world,” he said. “The International Energy Forum said we need 25 per cent growth in capex, this year, next year and the following year just remain equal, maintain equilibrium, in the market.” Mr Jeddeloh spoke to contacts in the Middle East and Texas about developments such as the Dutch court ruling ordering Shell to cut its emissions harder and faster than planned. "If anybody’s going to lose at the end of this it’s going to be them. But it’s surprising how sanguine they are about the whole process. They think it’s going to take decades and much higher prices to get us there.”
Amazing, these idiots actually believe that interests rates are too high. Brought to by the same dumb MFers that insisted that "Subprime is contained" all the while the CDOs were collapsing in price.
Ah well there goes our experience of having a Wall Street guy leading the central bank. Thanks for the memories.
The hell are you talking about? She's even more dovish than Powell. Unfortunately for her time is running out on this house of cards.
I'd be reluctant to characterize the new wave of economists as idiots just yet, as some others here have done. There are some pretty bright folks involved. The old-school economists' traditional thinking may not prove correct. Whereas the idea of the government inflating private sector debt away makes sense, since you pay your creditors back with less unit buying power than you borrowed, when it's government debt (that isn't) that we want to get rid of, however, the old saw of the government inflating its debt away may not make sense. We would do well to re-think. The result of the government buying back "debt" could be inflation! It is the buying back of debt by the central bank that swells reserve accounts, holds rates down, and in effect exchanges reserves for what was side tracked money in the form of bonds. The bonds flow to the fed and are then on the government side of the ledger, where they disappear upon maturity with the proceeds flowing right back to the treasury from whence they came. What seems clear is that a balance appropriate to current economic conditions must be maintained between how much private sector money is in the form of bonds and how much is in the form of non-interest paying money that can readily circulate. The government can, whenever it wants to, buy back as much U.S. "debt" as it deems appropriate. Twenty-first Century economists are split on whether buying back a substantial amount of the "debt" should ultimately result in an increase in inflation, or a decrease via a reduction in wealth because of interest income lost by the private sector*. I am reminded of two old fashioned ways of retiring government "debt": 1) with proceeds from budget surpluses via taxation -- a sure way to recession if carried too far, and 2) Calvin Coolidge's method: cut taxes and spend even less. "Gentle Cal" said he didn't see how the farmer could ever make much money and there wasn't much that could be done about it. __________________ *This seems to me an oversimplification.
He said the US would experience capital inflows until the bond market figured out that inflation was significant and long-lasting. Well, I'll wager the bond market figures it out way before the Fed acts. I don't know that it really matters who's in charge. There is no way in hell they jack rates if that increases unemployment. Their mandates are, in order: 1. Maximize employment 2. Eliminate inequality by pushing for equity. 3. Keep rates low so the govt can fund record debt 4. Let inflation run so the govt doesn't have to address debt.
I don't think you are one who has accepted yet what seems rather obvious to a few of us, viz, that the U.S. has no debt that in anyway resembles private sector debt, and there will never be a failed Treasury auction. Consequently, the concern of some that "capital inflows" might cease when "the bond market figured out that inflation was significant and long-lasting" seems to us few to be predicated on a misunderstanding of U.S. taxing, spending and "borrowing". Just as much so as the old idea of "inflating public debt away" that we all, in a prior age, believed so fervent in. Had we ever thought to try and reconcile what we believed to be true with what was actually true and right in front of our noses the whole while, we might have begun to question if our understanding was correct. We might have begun to wonder why it is that a government may make deep cuts in it's revenue, spend what seems to be unlimited amounts in deficit, and never have a problem "borrowing" what it needs to balance its books. And despite all of this, default has never been a real concern.