The Hazards of 4 More Years of Jerome Powell

The Hazards of 4 More Years of Jerome Powell

From Birch Gold Group

Whether Trump or Biden is elected in November, they will have to decide whether or not to appoint Federal Reserve Chair Jerome Powell to another term.

And if he is appointed again, the way he continues to handle the continuing ripple effects of the COVID-19 “shutdown” economy will be critical.

So let’s examine why the decision to reappoint him is important, then take a quick tour of some of Powell’s recent performance.

A piece from Paul R. La Monica provides a take on the importance of Powell’s re-appointment, beginning with the response to the market’s plummet earlier this year:

The Fed quickly lowered rates to zero in March and has since launched trillions of dollars worth of lending programs… Powell’s swift actions have won him praise from many economists and investing experts on Wall Street.

“Powell should get a second term if he wants it. He deserves credit for the speed and magnitude of the Fed’s response to Covid-19,” said Larry Adam, chief investment officer of Raymond James.

Mr. Adam and the article are correct on one point. The Powell-authorized “moon shot” in response to a dramatic market drop was certainly a fast move.

George Calhoun, professor of quantitative finance at the Stevens Institute of Technology, agreed with Powell’s quick decision to print trillions:

When the crisis hit, Powell went all out and opened the spigots. I’m not sure what rationale would be to have someone totally different at the Fed. Monetary policy has been effective.

Any person in Powell’s position could have made the same call, of course. We just have to hope that the long-term ripple effects don’t eventually reveal that his reaction was too much, too fast, or perhaps unnecessary.

A quick look at Powell’s performance since 2018 should, at the very least, raise questions.

Inflation, Confusion, and Repo Market Desperation… Oh My!

Here’s what March’s monetary “moon shot” looks like on the Fed’s official balance sheet:

It’s fairly obvious from this chart that Powell’s attempts starting in 2018 to reduce the balance sheet were not very successful.

Then there’s the yield curve. An inversion of the 2-year and 10-year treasuries has preceded every major recession for the last 50 years. Powell chose to sweep this market signal under the rug in 2018.

The yield curve inverted a second time in June 2019. You can see from the chart above that the St. Louis Fed considers February 2020 to be the start of another recession. So the inverted yield curve seems to have proved accurate once again.

But Powell’s problems in 2019 didn’t end with inverted bond yields. In September 2019, the repo markets went haywire. This forced Powell to make some “QE-like” moves to flood the repo markets with billions of dollars to keep them from freezing up.

In December 2019, it was discovered that four big banks were at the root of the repo market fiasco, so who knows if Chairman Powell “had” to print money in the first place?

Which Brings Us to 2020…

In addition to the Fed’s “moon shot” in March, Powell did an unusual “about face” on his former position regarding the $27 trillion in U.S. debt saying, “Now is not the time to act on those concerns.”

Intervention after intervention by Powell’s Federal Reserve and it remains to be seen what exactly is being accomplished beyond barely keeping the economy afloat (when all market factors are considered).

Just last month it seemed like a “confused” Fed couldn’t find and report the rapidly increasing food price inflation being caused by Powell’s most recent intervention.

(Hint: We found it, and once energy costs start rising again, we could be talking about hyperinflation in the U.S., but that’s a topic for another article.)

So the question remains: Should Federal Reserve Chair Powell be appointed for another term? Only the next President will make the call on that, of course.

But if the U.S. is returning to “inflation nation” again – a process that Powell started – then your retirement could be put at risk.

Hedge Against Potential Inflation With Gold and Silver

Examine your savings now, before it’s too late. Then consider whether to shift some of your assets to make it more resilient to Fed interventions.

Holding assets such as physical gold and silver can help to hedge against an inflationary economy, no matter what the future brings.

2020, cnbc, cnn, debt clock, Featured, jerome powell