Jerome Powell is Losing Support
Author: Greg Valliere
September 20, 2022
LOOKING FOR A SCAPEGOAT: We’ve talked with nervous Democrats who think Powell has over-done the restraint and is too willing to accept a recession, if necessary, to curb inflation. “It could take two years or longer to get inflation back to 2%,” said one Democrat who worries that his constituents will have little patience for persistently high rates.
UNTIL RECENTLY THE CRITICISM has largely been confined to progressives like Bernie Sanders and Elizabeth Warren. But we’re hearing that other Democrats may chime in after an expected 75 basis point hike tomorrow.
EVEN AT THE WHITE HOUSE, where Powell has some support, the grumbling may increase. With the congressional elections just six weeks away, someone has to take the hit — and Powell will be the likely target of anonymous leaks if inflation persists despite the Fed tightening.
POWELL’S CRITICS CITE TWO FAILURES: He was blindsided a year ago by the inflation eruption, which he said was temporary. He quite clearly got it wrong, as Larry Summers repeatedly reminds him. And to the Democrats’ dismay, the Fed Chairman has given Republicans a potent argument: soaring interest rates have caused the stock market to plunge but have not curbed core inflation.
THE OBVIOUS QUESTION IS WHETHER Powell will listen to the criticism and relent on aggressive tightening. He has thick skin, which Powell displayed in a nasty war of words with Donald Trump several years ago.
A KEY FACTOR will be whether the economy enters a recession this winter; some economists see a shallow recession, others anticipate a deep recession, and some think the economy will muddle through. If there’s a recession, Powell will receive
withering criticism if he continues to hike rates.
THE FED SAYS IT DOESN’T PAY ATTENTION to political criticism, but several more rate hikes could erode consumer confidence and depress spending plans. Psychology is a tricky factor, and Americans may sour on the economy if interest-sensitive sectors — especially housing — continue to slump.
THERE’S AN OLD ADAGE IN WASHINGTON: If you want a friend in this town, get a dog. Powell may find that he has far fewer supporters this fall if he takes a sledgehammer to inflation, without quick success. Americans hate high gasoline prices, but they also hate soaring interest rates, which erodes the value of their homes. Someone will have to take the blame.
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