An Important Democrat Blasts the Federal Reserve; New Price Tag for Infrastructure Bill
Author: Greg Valliere
August 6, 2021
JEROME POWELL LOOKED LIKE A SHOO-IN to win a second term as Fed Chairman when the summer began, but he suddenly looks vulnerable. The ubiquitous West Virginia Sen. Joe Manchin has become a vocal critic of the Fed’s monetary stimulus.
IN A LETTER TO POWELL, Manchin asserted that the continuing $120 billion in monthly Fed purchases of Treasuries and mortgage-backed securities risks an over-heating economy and inflation. Manchin’s letter was first reported in Politico.
“THE RECORD AMOUNT OF STIMULUS in the economy has led to the most inflation momentum in 30 years, and our economy has not even fully reopened yet,” Manchin said. “I am deeply concerned that the continuing stimulus put forth by the Fed, and proposals for additional fiscal stimulus, will lead to our economy overheating and to unavoidable inflation and taxes that hard working Americans cannot afford.”
MANCHIN THUS JOINS A GROWING GROUP OF DEMOCRATS who are uneasy with Powell, who could become an election albatross for the party in 2022. Critics include former Treasury Secretary Lawrence Summers, populist Sen. Elizabeth Warren and Fed Gov. Lael Brainard; the latter two are monetary doves but they want more aggressive Fed regulatory policies.
POWELL HAS THICK SKIN — he was mercilessly pummeled by Donald Trump, who thought the Fed wasn’t accommodative enough. Criticism goes with the job; Paul Volcker faced protesters at his home. We still think Powell is likely to win another term as chairman (his term expires in February), but a second term is no longer a sure bet.
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FUZZY MATH: Assurances that the $1.2 trillion infrastructure bill was fully paid for never met the smell test, and now it’s clear that the package will add at least $250 billion to the deficit, according to a new estimate by the Congressional Budget Office.
THIS FINDING probably will not derail passage of the infrastructure bill in the Senate, probably this weekend. But it signals bigger problems ahead — the second bill, perhaps costing $3.5 trillion, will contain laughable revenue assumptions that also will not stand up to scrutiny.
ONCE AGAIN, MANCHIN WILL BE A MAJOR PLAYER: It’s highly unlikely that either he or Sen. Kyrsten Sinema would agree to a package this fall that costs anywhere close to $3.5 trillion. They both believe the economy could become over-stimulated. We disagree — more stimulus may be needed if the Delta variant isn’t crushed.
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