Should he stay or should he go?
Quite a controversy has bubbled up at the intersection of economics and politics. President Trump has once again threatened to fire Chairman Powell. And once again withdrawn the threat. Financology has been reluctant to weigh in on the matter, first because it seems to appear and disappear with each news cycle, and second, because it doesn’t favor either side.
Why don’t we favor either side? Again for two reasons. One, because the media objections over preserving the independence of the Fed ring hollow. What independence? If it’s not kowtowing to Washington, it’s kowtowing to Wall Street. What truly civic-minded Fed, concerned with the well being of the average American, would blow bubble after bubble, act as a reverse Robin Hood conveyor belt for wealth, foment unplayable debt, and spend decades eroding living standards by devaluing its own security by 99+%, the security most Americans use to buy the stuff of living with?
To presume this is an independent Fed, with no other agenda but to serve the people, is absurd. Yet this is the tacit assumption upon which the corporate media builds its case against outside influence.
The question is not one of whether it serves powerful masters, but of which powerful masters it serves.
Two, the Powell Fed has far from distinguished itself. It not only failed to renounce Wall Street’s cherished 2% “inflation” target, but blew through it like a twister in 2020-2021, recklessly printing literally by the trillions and promising to hold rates at zero for the foreseeable future. Even when after many moons this tidal wave of inflation inevitably became obvious in consumer prices, Powell remained in steadfast denial, dismissing it as “transitory”, leaving hundreds of millions of non-one-percenters to struggle against the gale, a struggle that persists even years later.
Then after finally being chastened by reality and briefly walking its tough talk, the Powell Fed prematurely abandoned its efforts to clean up its own mess in 2023-2024, first caving to Wall Street’s pleas to tip a “pivot” to easier policy, then actually slashing rates into the election, when it had far less economic justification than it has even now.
No. We cannot defend this Fed.
Too late to tighten, too early to ease. Over and again. We are not merely Monday morning quarterbacking, either. These pages document our doubts in real time.
But we cannot take Mr Trump’s side either.
Of all the people that we would rather have running monetary policy than Powell Inc, Trump would not be one. Trump would inflate in 2025 almost as recklessly as Powell did in 2020.
In 2020, Powell at least had the initial excuse of the deflationary crash that occurred in the midst of Covid hysteria. That might actually have justified a few months of easy money. But he wasn’t satisfied, instead committing epic monetary malfeasance in failing to stem the flood of fiat once the crash was over, keeping his foot on the monetary gas long after any sane speed limit had been exceeded. It’s an inexcusable excuse, but Trump has even less.
So we have no dog in this fight. And if the mainstream financial media were honest, it would admit the American people don’t either.
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If I had authority to hire and fire Federal Reserve chairmen, I would fire Powell for interest rates being too *low* and for keeping its balance sheet too large. I’m of the belief that Treasury bill rates should be at least 5.5% and the Federal Reserve balance sheet should be under $1T and composed 100% of U.S. Treasury debt; ZERO mortgage backed securities or other garbage the Fed has picked up since 2008.
I’d also fire Powell for essentially bailing out the depositors in Silicon Valley Bank.
As for Trump, maybe what he wants is Idiot Supreme Ben Bernanke as Federal Reserve chairman. Trump has only got one term so he might as well do the right thing even if it means breaking a lot of things. The economy aside, that also means letting Ukraine and Israel twist in the wind as the U.S. suddenly yanks all military and economic support from them.
The best I can say about Powell is that he’s an improvement over his predecessor, “Go Big” Yellen. It was during her term that the “emergency” GFC inflation really went overtime, years after the crisis had ended. Not that Bernanke was any better … he instituted the 2% inflation target to begin with. For his part, “Bubbles” Greenspan laid the foundations for current problems by providing the liquidity to inflate the nineties stock market bubble. Then to paper over its collapse, he inflated the oughts mortgage bubble, whose collapse in turn sparked the GFC of 2008. This then led to yet even more aggressive Fed adventurism.
The whole thing is a series of one malfeasance leading to a bigger one.
I completely agree the Fed has no business holding anything on its balance sheet besides plain vanilla Treasuries, except I would extend that to Treasuries and gold.
Greenspan also started the Fed on its “transparency” kick, which has morphed into “forward guidance”. Because the Fed has deemed it essential to tell Wall Street what it’s going to do before it does it, it not only helps shuttle wealth up the scale but also leads it to further delay implementing policy after noticing it’s in order.
The Bernanke-Yellen years are also responsible for the growing federal debt disaster. Ultralow rates “work” by encouraging borrowing. Politicians are not immune. After all, we repeatedly heard the refrain that we should not worry about the size of the federal debt because debt service costs were manageable. Not least from Yellen herself during her stint as Treasury Secretary.
History does not give us confidence we can rely on having responsible leadership at the Fed. Ultimately the only solution is to strip the Fed of its powers to target interest rates. Or eliminate the Fed altogether.
Now you’re talking.
Treasury Secretary Bessent calls for a review of ‘the entire’ Federal Reserve
“What we need to do is examine the entire Federal Reserve institution and whether they have been successful,” Bessent said during an interview on CNBC’s “Squawk Box.” “Has the organization succeeded in its mission? If this were the FAA and we were having this many mistakes, we would go back and look at why has this happened.”
I think your wishes may come true, through the GENIUS Act and if at the same time the law that would prevent the FED to issue its own CB Stable Coin is indeed passed. Ultimate win for Wall Street and the Treasury. It may become the ultimate bubble.
Thanks for the words of encouragement;-) I couldn’t agree more. The three significant cryptocurrency bills passed by the US House of Representatives are the Digital Asset Market Clarity (CLARITY) Act, the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, and the Anti-CBDC Surveillance State Act. These bills aim to establish regulatory frameworks for digital assets and stablecoins while addressing concerns about central bank digital currencies.
I haven’t studied the details of these bills, but the second one is the product of crytpo industry insiders and government interests; of the big money, by the big money, for the big money. So it’s not surprising it sailed through with the least resistance. The first one is more mixed. The last one is the one that puts the most restraint on Wall and Washington. For this reason, the cynic in me has suspected all along it has the least chance of becoming law, at least not without being watered down.