Biden Pressures The Allegedly Independent Fed To Stop Rate-Hikes

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by Tyler Durden
Monday, Dec 11, 2023 - 02:10 PM

Authored by Mike Shedlock via,

It’s a “living hell” for the Fed...

Biden Says Jobs Numbers Should Deter More Fed Rate Hikes

Bloomberg reports Biden Says Jobs Numbers Should Deter More Fed Rate Hikes

President Joe Biden said Friday’s jobs report shows the labor market remains resilient as inflation continues to ease, an economic “sweet spot” that he said shouldn’t prompt the Federal Reserve to raise rates further.

The comments marked a rare example of Biden weighing in on central bank policy making. They came as the president gears up for a reelection campaign that will be decided in part on his stewardship of the US economy, which voters have rated poorly, polls show.

The US labor market unexpectedly strengthened in November, adding 199,000 jobs and showing wage growth that tempered bets the Fed would cut rates early next year. That should be considered a “solid, steady” increase, Biden said Friday.

The president called the figure “a sweet spot that’s needed for stable growth and lower inflation, not encouraging the Fed to raise interest rates,” during a speech in Las Vegas, Nevada.

Recent presidents have refrained from routinely commenting on the Fed, wary of eroding the bank’s traditional independence to set monetary policy and giving the impression that decisions are driven by politics.

Electioneering, Gee Who Coudda Thunk?

Trump did the same thing of course. Presidents always want an independent Fed except when they don’t.

Q: When is that?
A: When they are running for reelection.
Q: But when is that?
A: Arguably always, but definitely more pronounced starting a year before before an election

Biden’s pressure led to some interesting Tweets on X.

Judy Shelton, Fed Candidate Under Trump, Chimes In

Shelton: Hey, I thought Biden always said he respected the Fed’s independence. What gives?

Mish: Judy, it is so sad that you are not on the Fed. The Fed prides itself on “diversity” but there is no diversity at the Fed where it matters, diversity in thought. They are pack of group-think clowns believing in theories that don’t work.

Living Hell in 2024

“The Fed is looking at a living hell in 2024. Trump will make compromising their independence a cornerstone of his campaign the minute they even try to cut rates. If he is elected, he will instantly “pivot” to demands for ZIRP and more QE. The Fed (as we know it) may not survive.”

I have stated many times the Fed is walking a tightrope with no winning actions. Stimpyz more accurately calls it a “Living Hell”.

The Big Tease: Will the Fed Enter the Fray as the 2024 Election Draws Near?

Let’s return to Judy Shelton with her recent article in the Independent Institute, The Big Tease: Will the Fed Enter the Fray as the 2024 Election Draws Near?

By one reckoning there’s a 99 percent probability that the Fed will lower the federal-funds rate by September [2024] —its last meeting before Americans go to the polls.

Based on futures pricing data, there is an 86 percent probability the Fed will implement a lower federal-funds rate by its May meeting and a 99 percent probability by its September meeting—the last meeting before Election Day. In remarks Friday, the central bank’s chairman, Jerome Powell, appeared to leave the door open to lower rates in the latter half of 2024.

The presumption of independence between the actions of the nation’s central bank and the economic agenda of the White House renders it crude to ask but still: When does the grumbling begin that Mr. Powell could end up choreographing an economic boost that serves to help the incumbent presidential candidate?

Mr. Trump was adamant in complaining that the Fed’s rate increases were needlessly constraining economic growth and raising borrowing costs. “I personally think the Fed should drop rates,” he told reporters in April 2019. “I think they really slowed us down. There’s no inflation.”

No doubt mindful as well that the Fed’s about-face on interest rates might be seen as having succumbed to Mr. Trump’s jawboning, Mr. Powell carried out a formal review of the Fed’s monetary policy framework that included a series of Fed Listens public engagement events held around the country with various community groups “to hear about how our policies affect peoples’ daily lives and livelihoods.”

If the Fed has as much impact over economic performance as its own pronouncements suggest, the real error is that the purchasing power of the dollars earned by American workers—along with their prospects for owning a home and building a secure financial future—are so dependent on the discretionary judgment of Fed officials who have proven so fallible.

Damningly Accurate Assessment

Whether or not the Fed is independent, the last paragraph is a damningly accurate assessment of the Fed’s performance for decades.

Since 2018 the Fed has blown three spectacular bubbles via QE and by acting on economic models that do not work and never did.

How the Fed Destroyed the Housing Market and Created Inflation in Pictures

On October 5, I commented How the Fed Destroyed the Housing Market and Created Inflation in Pictures

@SanFranciscoFed @stlouisfed @NewYorkFed. Hey Fed presidents, please comment on this: The Fed erroneously does not consider rising home prices as inflation. Here’s the result in pictures.

See the above link for discussion.

Case-Shiller national and 10-city home prices vs CPI, Rent, and Owners’ Equivalent Rent

That is a more recent chart than the one posted in October.

Here is a pertinent comment I made then.

The longer the Fed holds rates high, the longer the housing transaction crash lasts. But cutting rates will further expand the housing bubble, asset bubbles in general. And bubbles are destabilizing.

This is the Fed’s tightrope dilemma, of its own making, foolishly hoping to make up for lack of enough inflation, calculated by not factoring in home prices or asset bubbles.

Tightrope or Hell?

In deference to Stimpyz, today I ask “Tightrope or Hell?”

Fed Groupthink

Fed groupthink on the Phillips Curve, QE, and Inflation Expectations are three prime examples of Fed belief in ridiculous models led to the Fed’s current hellish dilemma.

For discussion, please see How Do Inflation Expectations Impact Wages and Future Consumer Inflation?

It was nothing but groupthink, this time by the Senate for her views on gold, that kept Shelton off the Fed.