In terms, of the first message it is clear that this Federal Reserve has a strong allegiance to President Trump. My assumption is that it might even be closer than Richard Nixon’s Fed was to him during his Presidency. President Trump has nominated four of the five current members of the Federal Reserve Board to their current positions – including Mr. Powell. Repeating, he has already placed people who have congenial views to his in every governmental agency that has any relationship to banking.
He expects his nominees to act in a fashion that facilitates his economic agenda and they are doing so. The pressures on banks have eased meaningfully since the days of the hardliners when banking was being de facto nationalized.
The second message from Mr. Powell’s speech is that the Fed may ease its pressure on the financial system (and abandon the concept of a neutral rate). It should be understood that this Fed was involved in more than just raising interest rates. It was fundamentally changing its core policies as shown in the past three decades.
In the prior period, the Fed had made money available in large amounts at unusually low interest rates when needed. The Powell Fed was reducing the availability of money and raising its costs. A policy change of this magnitude requires more than five people sitting behind closed doors making decisions. It requires a much broader discussion and hopefully that will happen.
At the moment though the game has changed and the Fed has removed itself from a central position in the economic debate. Whether this is positive or not remains to be seen.
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