Powell pays for past mistakes
In the summer of 2020, Fed chair Jerome Powell could not have been clearer. “We’re not thinking about raising rates,” said Powell, before doubling down: “We’re not even thinking about thinking about raising rates.”
Things, as we now know, turned out a little differently. The months marched on, and with the Biden administration determined to spend, spend, spend, inflation went from “high class problem” to “transitory” to the biggest problem facing the US economy. Powell and his Fed colleagues went from not thinking about thinking about raising rates to, well, raising rates. From virtually zero around this time last year to 4.75 percent as of January.
As the Fed upped the ante in its fight against inflation, economists studied the history books and warned that a soft landing, in which higher interest rates bring inflation back under control without shrinking the economy, was very unlikely. A recession, they warned, was all but inevitable. For a brief period earlier this year, things were looking up. Inflation showed signs of cooling, even as other economic indicators remained fairly healthy. “The soft landing was back on!” enthused the optimists. Some unwelcome stickiness in the inflation reports that followed suggested this cheeriness might be misplaced. Now a banking crisis has revealed it to be wishful thinking. As Matt Continetti put it on Friday: “Soft landing? Afraid not. Brace for impact.”
Missing in the fast-moving story of Silicon Valley Bank’s failure and the wider financial services wobble is sufficient appreciation of how bound up this crisis is with the policy mistakes of Powell and Co.
An era of low interest rates that came to an abrupt halt in the last year or so isn’t just the backdrop to the story of the collapse of Silicon Valley Bank, but the heart of the matter. Back when Powell was “not even thinking about thinking about” raising rates, SVB was plowing its ballooning deposits into long-term US government bonds. A fatal miscalculation, to be sure, but one encouraged by the words and actions of Jerome Powell.
And so when Powell and his Fed colleagues meet to decide whether or not to raise rates, they won’t just be facing an extremely unappetizing set of options, but, in part, dealing with the consequences of their past mistakes.
The markets expect a quarter-point rise, but one thing that is certain is that the man in charge of that decision looks a lot worse after recent events. Whatever credit Powell hopes to earn for his swift actions to reassure markets after SVB’s collapse should be measured against his own part in this crisis’s creation. The reputation of one of Washington’s more respected figures is badly bruised and justifiably so. But Powell has no time to lick his wounds.
Prior to SVB’s collapse, Powell sounded decidedly steadfast in his determination to tame inflation, albeit belatedly. He has promised to keep raising rates “until the job is done.” In recent days, he has sought to sound similarly determined to save the financial system, playing his part in a sweeping intervention that will likely transform the banking sector. On Wednesday, the date of the rates decision, these two impulses come into direct conflict.
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How will it look, for the health of American democracy, if the former president Donald Trump is put in handcuffs next week over charges that he paid “hush-hush money” to the porn star Stormy Daniels?
The man himself seems to be bracing for legal persecution over what he calls “The Stormy Horseface Daniels Extortion Plot.” He says he expects to be arrested on Tuesday and blames his “sleazebag” former lawyer Michael Cohen, who claims Trump paid him $280,000 to pay off Daniels and another woman called Karen McDougal, who was voted America’s second “sexiest playmate of the 1990s.”
Trump has always denied the allegations and says the whole Daniels case is “ancient and now many times debunked.” Manhattan district attorney Alvin Bragg has been investigating whether Trump’s alleged payments broke state law. Trump’s campaign say that Bragg is a “George Soros-backed Radical Left Democrat Prosecutor.”
Trump has called on his supporters to “protest” — which hysterical media opponents have immediately interpreted as another call for violence à la January 6. And so the silly dance goes on.
The United States Senate is known as the cooling saucer but lately the china cabinet has been smelling a bit musty. The currently sitting Senate (emphasis on sitting) is one of the oldest that’s ever been convened. Senators Dianne Feinstein and Chuck Grassley are both eighty-nine, while Senator Bernie Sanders is a sprightly eighty-one.
This isn’t necessarily a problem in and of itself. In an age when we romanticize youth, the Senate is supposed to prize wisdom and experience over Fox News hits and social media clapbacks (though whether experience equates to wisdom is a proposition being tested every day by one Joseph Biden). The problem is that the damn senators keep getting sick and not showing up for work. Politico reports that it’s been seven months since all 100 senators were able to convene together. Just last week, five senators missed every vote.
Remember this the next time you’re subjected to histrionics over a government shutdown. It won’t surprise you to learn that of the top ten oldest senators, only one, Grassley from Iowa, can be said to hail from a swing state. So perhaps it’s telling that Grassley brags of having not missed a vote since 2020. Keep hustling, senator!
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