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Fed Watch: Resignations, Warren Attack Don’t Bode Well For Powell Renomination

By Investing.com (Darrell Delamaide/Investing.com)Market OverviewOct 04, 2021 03:40AM ET
www.investing.com/analysis/fed-watch-resignations-warren-attack-dont-bode-well-for-powell-renomination-200603849
Fed Watch: Resignations, Warren Attack Don’t Bode Well For Powell Renomination
By Investing.com (Darrell Delamaide/Investing.com)   |  Oct 04, 2021 03:40AM ET
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Poof! And suddenly they’re gone.

Two members of the Federal Open Market Committee (FOMC) who were in good standing at the meeting less than two weeks ago won’t be taking part when the policy-setting panel meets in November. This doesn’t happen every day.

Robert Kaplan, head of the Federal Reserve Bank of Dallas, said he is resigning after disclosure that he made multiple million-dollar stock trades while the Fed was inflating stock markets with its asset purchases. Boston Fed chief Eric Rosengren also stepped down after much more modest trades were revealed, citing health issues.

Both men were nearing retirement anyway, but the burgeoning scandal has already tarnished the Fed’s reputation and may cost Chairman Jerome Powell a second term.

Escalating Controversy; Sticky Inflationary Risks

And it’s not over. Over the weekend it emerged that Fed Vice Chairman Richard Clarida shifted anywhere from $1 million to $5 million from bonds to stocks in February 2020, the day before Powell announced the onset of COVID-19 could lead to massive monetary stimulus from the central bank.

Just a coincidence, says the Fed. A remarkably well-timed coincidence.

None of this bodes well for Powell being renominated, even as allies have marshaled support for him. The Wall Street Journal editors even suggested that President Joe Biden’s nomination of Cornell professor Saule Omarova to head the Office of the Comptroller of the Currency—the most important bank regulator after the Fed itself—was to appease progressives so that he could reappoint Powell.

Omarova, who grew up in the Soviet Union, recently went on the record calling for an end to banking as we know it by centralizing deposits in the Fed. Critics are saying her nomination—which took the administration nine months to settle on—faces what is mildly called a rocky path to confirmation in a 50-50 Senate. Progressives may end up being disappointed and demand Powell’s head.

During a hearing last week, Senator Elizabeth Warren, the scourge of banks, called Powell “a dangerous man to head up the Fed” and pledged to vote against his re-nomination. Her critique is that Powell has moved too far toward deregulation of banks. She worried that he will “drive this economy over a financial cliff again.”

Somewhat lost in the controversies over personnel is the growing feeling that inflation is not transitory. Powell himself acknowledged in a panel discussion last week that the rate of price increases is lasting longer than he anticipated and will continue into next year.

Harvard economist Larry Summers, perhaps feeling that a prophet is without honor in his own country, took his warnings on inflation to a more receptive audience in the German financial daily Handelsblatt. He reiterated in a weekend interview that inflation risks in the US and globally are being underestimated. He compared the risks now to those that built up in the US toward the end of 1960s, leading to the stagflation of the 1970s.

The personal consumption expenditures price index rose 0.4% on the month in August, and 4.3% on the year, the biggest gain since 1991, according to data released on Friday. The core PCE index, which excludes food and energy costs and is the Fed’s preferred measure for inflation, was up 0.3% on the month and 3.6% on the year.

But the main issue, it being Washington, DC, is politics. Powell’s renomination, as the Warren rebuke demonstrates, has been caught up in the political divide among Democrats, with progressives battling moderates for the soul of the party.

As economist Ed Yardeni quipped, it may be Powell’s tenure, not inflation, that turns out to be transitory.

Fed Watch: Resignations, Warren Attack Don’t Bode Well For Powell Renomination
 

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Fed Watch: Resignations, Warren Attack Don’t Bode Well For Powell Renomination

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Comments (12)
Maryam Juma
Maryam Juma Oct 06, 2021 7:09PM ET
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hello everyone here am new here but I don't no how to use this investment
Mart Mala
Mart Mala Oct 04, 2021 7:55PM ET
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Kaplan and Rosengren are guilty only because they got caught. Am sure taking advantage of inside information is prevalent amongst the state governors. These two have made their money. is resignation the only consequence of their action ? Will money made from these illegal trades be forfeited to the federal gvt?
Mart Mala
Mart Mala Oct 04, 2021 7:55PM ET
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Fed head of states* not governors
Roger Miller
Roger Miller Oct 04, 2021 1:35PM ET
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Infighting among central planners is obviously leading to increased central planning and control, when what we need is less.
Mario tragik
Mario tragik Oct 04, 2021 12:17PM ET
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Jesus Christ if the regular joe would even try this he probably be in jail already. The level of impunity is outrageous, then they ask why people don't trust government.
Bipin Kochar
Bipin Kochar Oct 04, 2021 11:39AM ET
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Oh - and the energy sector inflation is largely due to the overselling of renewable energy as a replacement - sadly, it is now clear that for at least the next 10 years, coal needs to be a part of energy security for many nations
simone scelsa
simone scelsa Oct 04, 2021 11:39AM ET
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Why 10 years, based on what figures? It can be 50
Bipin Kochar
Bipin Kochar Oct 04, 2021 11:34AM ET
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Jerome Powell has done a remarkable job and beautifully stabilized the markets from the panic spells caused loose comments from a few colleagues. The inflation in metals has been caused largely by huge under investment in these sectors over the past decade where these were left to China to deliver on - Biden needs to ensure that the world economy is derisked from excessive dependence on China.
Ritter Farnwald
Ritter Farnwald Oct 04, 2021 11:26AM ET
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Elizabeth Warren is intent on throwing a wrench in the works. Enjoying enhancing her profile at the expense of a teetering democracy
Gerald Minster Jr
Gerald Minster Jr Oct 04, 2021 11:09AM ET
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Warren is a radical senator trying to push her own agenda. She is a cancer within the US Government. If she doesn’t get her way, she tries to remove people in her way. Powell has done a great job! Especially under the pressures of both parties. He does what is right for the country, while she does whats right for her own agenda.
Chart Harmonics
Chart Harmonics Oct 04, 2021 11:04AM ET
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Everything in life is "Transitory". The focus should be on what needs to be done now with the existing conditions being taken into account.
Roger Pruzansky
Roger Pruzansky Oct 04, 2021 6:21AM ET
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the federal reserve is the real government
Vi Ma
Vi Ma Oct 04, 2021 3:59AM ET
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he should NOT be renominated and all the Fed Chairs since Greenspan, Bernake, Yellen and now Powell should be tried for the monetay policy plague they unleshed upon the financial, developed world which has brought EU & US to the brink of an economic and currency collapse in this decade itself !!!
Ross Dre
Ross Dre Oct 04, 2021 3:59AM ET
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Yes! Preach it!
Aung Khant
Aung Khant Oct 04, 2021 3:42AM ET
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hello
 
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