The Fed Fiasco and the Damage Done; Tentative Talks on Debt Ceiling
November 22, 2021
The Fed Fiasco and the Damage Done;
Tentative Talks on Debt Ceiling
November 22, 2021
BEFORE HE LEAVES FOR NANTUCKET on Tuesday evening, President Biden is expected to announce his decision on the Fed Chairmanship, ending a dysfunctional vetting process that has bruised both Jerome Powell and, surprisingly, Janet Yellen.
FOR POWELL, this process has sent a message that Biden doesn’t have a lot of confidence in the current Chairman, who is way, way behind the curve on inflation — and has been wrong since last spring, when Powell was sanguine about the threat of persistently higher prices. Biden’s indecision seems to be sending a signal that he isn’t satisfied with what he has now at the Fed.
THIS PUTS TREASURY SECRETARY YELLEN in an awkward spot. She urged Biden to re-nominate Powell several weeks ago, and the president has not complied. Yellen undoubtedly could live with the other candidate, Lael Brainard, but Biden has signaled, in effect, that he doesn’t have confidence in Yellen’s judgment on Powell.
IN THE FINAL ANALYSIS, it’s about which candidate can most easily win Senate confirmation, and on that score, Powell is the obvious pick; he would comfortably sail through. But the message from Biden will be terribly lukewarm — I’ll pick Powell because he can win confirmation, not necessarily because he’s the best pick.
IF BIDEN CAPUTILATES, ONCE AGAIN, to the Progressive left and picks Brainard as Fed Chair, it will ignite still another fight within the party, which desperately needs to show unity ahead of bruising elections next year.
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TENTATIVE TALKS ON DEBT CEILING: Congress is out of town, set to return from Thanksgiving recess next week to resume debating the Big Four issues:
1. The defense spending bill, likely to win enactment in early December, perhaps with an anti-China “competitiveness” provision to boost funding for U.S. manufacturers.
2. Keeping the government open, which will necessitate another stop-gap measure when the current deadline expires on Dec. 3. This could drag into 2022.
3. The social spending bill, which will take weeks to resolve in the Senate, after House passage last Friday. This also could drag into next year, amid endless speculation about what Sen. Joe Manchin is willing to accept on spending and taxes.
4. Hiking the debt ceiling, a serious issue, which has prompted initial talks between Chuck Schumer and Mitch McConnell. They’ll reach a last-minute compromise — or approve another extension, also until next year. The threat of a government default is exaggerated.
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COVID, STILL WITH US: The U.S. economy looks surprisingly solid, and the Wall Street Journal reports this morning that supply chain bottlenecks may be easing. But Covid is still taking a terrible toll in the U.S. and Western Europe, where vaccine protests are raging. Bond yields may stay remarkably low until the Covid crisis abates, which doesn’t seem to be imminent.
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