Investors are still underestimating the risk of inflation, JPMorgan’s quant-driven chief global markets strategist said.
In a Monday note, a team led by Marko Kolanovic reiterated their recommendation to stay overweight in assets pegged to the economic recovery, and noted that inflation surprises are likely to persist throughout the second half of 2021.
“In our opinion, inflation risks are underappreciated by both economists and markets at the moment,” said the strategists. “At an asset class level, the inflation theme does not only favor an overweight in commodities and equities, but also an underweight in credit.”
They added that value stocks and value-oriented sectors should continue to outperform, while tech stocks may lag if rates rise.
Rising inflation has been a central concern on Wall Street as the economy rebounds out of the pandemic. Last week, BlackRock’s Gargi Chaudhuri said that while she doesn’t expect runaway inflation of the 1970’s, higher inflation is an underpriced risk.
Despite inflation risks, Kolanovic’s team has a bullish outlook on the stock market for the rest of the year.
The strategists cited the ongoing recovery from the pandemic, accommodative monetary stance from global central banks, and still-below average positioning in risky asset classes such as stocks and commodities as reasons for their pro-risk view.
“The next leg higher is likely upon us, following the sideways move in markets and bond yields over the past two months, with cyclicals expected to do better again vs defensives,” they said. “Despite peaking in some activity indicators, the market is likely to get comfortable that growth will remain significantly above trend in 2H, supported by both consumer and capex. Regionally, our strategists expect the outperformance of Eurozone, Japan and EM, while they are underweight US and UK stocks.”
After decades of weaker-than-expected price growth, America has inflation on the brain.
Inflation – or the general rate at which prices climb – has taken center stage as the US economy climbs out of its year-long slump. Economists expect the combination of a swift reopening and trillions of dollars in stimulus will lift prices at their fastest rate in recent history.
For some, forecasts of stronger inflation bring up memories of the 1970s and 1980s, an era sometimes called the Great Inflation, when prices grew at such a furious pace that the Federal Reserve had to lift interest rates to historic highs.
For younger observers, healthy inflation is a long pursued but seldom seen goal. Price growth has trended below the Fed’s 2% target for most of the past quarter-century. People under 40 simply don’t know a world with runaway inflation – or what the beginning of such a world might look like.
But recent economic headlines – gas shortages, troubles in the labor market, and big-government programs – have a distinctly ’70s flair. Just when should Americans know when to be really worried that inflation could be back in a big and problematic way?
Here’s a look at what inflation actually is, why it’s a tricky concept that is a bit of a self-fulfilling prophecy, and how it’s actually unfolding in 2021.
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Why are people worried about inflation?
The basic notion of soaring prices is concerning. Roughly 10 million Americans are still out of work, and millions more were unemployed for at least some of the past year. At a time when many Americans are looking for stable financial footing, people are more worried about inflation than they have been in years.
The way in which prices have been climbing has already made some worried. While the Fed and President Joe Biden’s Council of Economic Advisors have repeatedly said they expect stronger inflation to be only temporary, others are less optimistic.
Former Treasury Secretary Larry Summers, one of the loudest voices raising concerns of rampant price growth, castigated Democrats’ $1.9 trillion stimulus in March as the “least responsible” fiscal policy in 40 years and kindling for an inflation crisis.
“I think there’s about a one-third chance that the Fed and the Treasury will get what they’re hoping for and we’ll get rapid growth that will moderate in a non-inflationary way,” he added.
A return to the inflation seen in the 1970s would be disastrous for the already ailing economy. In that decade, swaths of easy money were initially viewed as a way to combat unemployment, but inflation quickly broke out of its trend and spiraled out of control. The Fed was forced to step in with interest rates as high as 20% to choke off the price growth, and that had its own detrimental effects on the economy, including a deep recession in the early 1980s.
Conservative economists have warned Biden’s $1.9 trillion stimulus package was unnecessary and could spark a similar disaster. Whether price growth stays elevated or trends back to about 2% will tell the tale of whether Biden’s plan was safe or fuel for a 1970s-like crash.
What would healthy inflation look like this year?
The Fed, America’s central bank, has an “inflation target,” which it uses to guide price growth. In a major shift, the central bank replaced its 2% target in August with a goal for inflation that averages 2% over time. This update allows the Fed to pursue inflation above 2% immediately after the crisis as it tries to run the economy hot and drive a stronger recovery.
The Fed’s own projections point to the stronger-but-transitory inflation it expects to see over the next few months. Policymakers expect year-over-year personal consumption expenditures – the Fed’s preferred inflation measure – to reach 2.4% this year before cooling to 2% in 2022, according to a March release.
The Fed’s new inflation target opens the door for a period of economic overheating as the country reopens. It’s this gamble that concerns conservative economists, or “hawks.” After decades of not letting inflation trend above 2%, it’s embarking on an experiment to let the country run hot in hopes of a faster recovery.
Fed Chair Jerome Powell has been less exact with his forecast, but expects inflation to trend above 2% for “some time” before falling in line with the central bank’s long-term goal.
How does inflation look now?
Signs of an inflation pick-up have emerged, which the Fed says it expected and critics say merits caution.
The PCE price index jumped 0.6% in April, marking the strongest one-month jump since 2008. The measure also notched a 3.6% year-over-year gain, though the data is somewhat skewed by last year’s readings. Inflation “doves” say such a big jump is only natural after the pandemic and widespread lockdowns brought price growth to a near crawl.
The core PCE price index, which excludes volatile food and energy prices, rose 0.7% in April and 3.1% on a year-over-year basis. The core measure is the Fed’s preferred gauge of nationwide price growth.
Inflation expectations are also a gauge worth watching. Median US inflation expectations for the next 12 months gained to 3.4% in April from 3.2%, according to the Federal Reserve Bank of New York. Expectations can serve as a kind of self-fulfilling prophecy. When Americans anticipate faster price growth, businesses tend to lift prices and workers in turn demand higher wages. While inflation expectations typically surpass real inflation, they can hint at the direction inflation will trend, and even affect prices and wages in that direction.
Taken together, the gauges show inflation firming, but still far from the peak economists are bracing for. The median estimate for April year-over-year CPI sits at 3.6%, a rate that would be the fastest since 2011.
What can the Fed and the government do about inflation?
Inflation has been half of the Fed’s dual mandate since its inception in 1913. The central bank was tasked by Congress to ensure stable price growth for the US economy. Its main lever for doing so is its benchmark interest rate, which dictates borrowing costs across the country.
When rates are high, Americans are more incentivized to save money. When rates are low, or near zero as they are today, Americans are pushed to borrow and spend. The Fed’s ability to change rates allows it to stimulate economic activity in times of recession or cool spending when the economy is running hot.
The latter is primarily how the Fed dampens strong inflation. By raising interest rates, the central bank weakens the incentive to borrow and spend. That then drags on demand and weakens the rate at which businesses lift prices.
“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” he said. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”
During those years, unemployment and wage growth among low-income households and racial minorities started to fall in line with broader measures. By letting inflation run above its historical average for some time, the Fed aims to foster not just a tighter labor market, but one that’s more inclusive and beneficial for all Americans.
The risk is that higher inflation in pursuit of a more inclusive economy can spark a new crisis as price growth runs out of control.
Historically strong price growth will be with the country into 2022, but Americans still need not worry, Treasury Secretary Janet Yellen said Thursday.
The US economy is in the midst of an inflation conundrum. The relaxing of economic restrictions and stimulus passed by Democrats in March have supercharged the recovery. Yet the resulting bounce in demand and a slew of supply bottlenecks have driven inflation to its highest levels in more than a decade.
The Federal Reserve and the Biden administration have maintained their forecast that, as supply chains heal and the economy settles into a new normal, inflation will fade to healthier levels.
Yellen reiterated the White House’s outlook in a hearing with a House Appropriations subcommittee.
“My judgment right now is the recent inflation we’ve seen is temporary. It’s not something that’s endemic,” the Treasury Secretary told lawmakers during the virtual hearing. “I expect it to last, however, for several more months and to see high annual rates of inflation through the end of this year.”
Republicans, however, have recently gone on the offensive. Members of the party this week pinned accelerated price growth to President Joe Biden’s spending plans and raising concerns around economic overheating.
The Consumer Price Index – a popular measure of broad inflation – surged 0.8% in April from the month prior, the Census Bureau said earlier this month. The index also notched a 4.2% year-over-year gain, the largest since September 2008. The April uptick was primarily fueled by a 10% month-over-month gain for used car prices.
To be sure, year-over-year measures are somewhat skewed by year-ago readings. Inflation turned negative at the start of the pandemic and remained historically weak for months after. Those levels serve as a lower bar to clear for present-day readings.
Yellen also rebuked Republicans’ argument that Biden’s follow-up spending proposals will further accelerate inflation. Historically low interest rates mean the government can spend now with little immediate pressure to repay its debt, the former Fed chair said. The US will need to reach a sustainable path for spending after the recovery, but debt concerns shouldn’t keep the government from spending on infrastructure and other investments, she added.
Americans will get their next glimpse at nationwide inflation when the government publishes Personal Consumption Expenditures data Friday morning. Economists surveyed by Bloomberg expect core PCE to jump 0.6% month-over-month in April.
Rent prices tumbled at the start of the pandemic and are only just now on the rise. But where inflation in other pockets of the economy is expected to cool off, rent might just keep climbing.
The Federal Reserve, Biden administration officials, and much of Wall Street see elevated overall inflation eventually moderating as the economy settles into a new normal. The last inflation report, while stronger than expected, showed price growth picking up in services closely linked to reopening. The consensus holds that as such bottlenecks and pent-up demand fade, inflation should moderate, but “shelter inflation,” or rent, could be the big exception to that.
Rent prices are flashing “signs of more persistent inflationary pressures” on the horizon, Morgan Stanley economists said in a Sunday note. Shelter inflation – which covers rent and owners’ equivalent rents – is only just picking up after prices cratered through the pandemic.
Goldman Sachs echoed its peer in a Monday note, saying the “special factors” that held down shelter inflation during the health crisis will soon ease up and drive prices higher.
The shelter-inflation gauge is critical for broader inflation, since it represents “more cyclical, more persistent, and more inertial sources of price pressures,” Morgan Stanley said. And as shelter inflation accelerates through 2021, it could lead broader inflation to normalize above 2%, the team led by Ellen Zentner added.
Such an outcome could be worrisome for the Fed. The central bank has said it aims to let inflation run above 2% for some time before looking to pull it back to that threshold for the long term. Inflation settling above that level could force the Fed into an unforeseen corner.
Forecasts suggest soaring shelter inflation could also push inflation expectations permanently higher. Shelter prices are expected to grow 3.8% year-over-year by the end of 2022, Goldman economists said. Inflation will accelerate further and land above 4% in 2023, exceeding the highs of the last economic expansion.
With renters making up nearly one-third of the housing market, such strong inflation could spark intense price concerns. Elevated inflation expectations can drive real inflation higher, as businesses tend to raise prices and workers ask for higher wages when they expect price growth to accelerate.
Skyrocketing home prices could add to the sector’s price pressures, the team of Goldman economists led by Jan Hatzius said. A historic shortage of home inventory and surging demand led home prices to climb at their fastest-ever rate in February, according to the Federal Housing Finance Agency. Although home prices don’t directly affect shelter inflation, Goldman found that 5% to 15% of home-price growth eventually spills over into shelter inflation.
To be sure, shelter inflation counts for just 20% of the core Personal Consumption Expenditures index and 40% of the core Consumer Price Index, two of the most popular broad inflation gauges. It would take considerably strong shelter inflation to pull both indexes to worrying levels.
Still, the component is one to watch as the country reopens, Goldman said. The end of pandemic-era payment forgiveness will likely skew data later this year, as will a tighter labor market. If those factors can fuel stronger shelter inflation expectations, broad inflation could follow.
US stocks fell on Monday with the Nasdaq tumbling over 2% as investors feared a pick-up in inflation would weigh on the high-growth sector. Every one of the FAANG stocks – Facebook, Amazon, Apple, Netflix, and Google – closed down more than 2%.
Rising commodity prices are driving investors to question whether inflation will persist and derail the record-setting rally in stocks. Federal Reserve Chairman Powell and Treasury Secretary Yellen have both signaled that any inflationary pressures will just be temporary, but Wharton Professor Jeremy Siegel said on Friday that inflation could spike massively and force the Fed to change its policy stance earlier than anticipated.
Here’s where US indexes stood at the 4 p.m. ET close on Monday:
While some commodity prices, such as lumber and copper, have exploded lately, Goldman Sachs said in a note that agriculture and industrial metals could lead the next leg of the commodities rally for the next twelve months.
A frenzy in stock market retail trading failed to materialize in March despite $1,400 stimulus checks from the Biden administration. Retail trading activity fell to 18% of all US trades in March, according to a note from JPMorgan.
Ether recorded its biggest one-day gain in two years on Monday, as the world’s second-largest currency smashed past $4,000 for the first time. Meanwhile, Dogecoin plunged 10%, continuing its slide following Elon Musk’s appearance on Saturday Night Live over the weekend. Musk also announced his SpaceX company will launch the satellite “DOGE-1 Mission to the Moon” next year.
Gas futures hit their highest level since May 2018 on Monday as a cyberattack against the largest fuel pipeline in the US kept key operations offline for a third day and just weeks before demand for gas should spike for the summer season.
Senate Minority Leader Mitch McConnell on Thursday faulted the Biden administration for approving stimulus benefits, and claimed they are hurting the nation’s economic recovery.
“We have flooded the zone with checks that I’m sure everybody loves to get, and also enhanced unemployment,” McConnell said from Kentucky. “And what I hear from businesspeople, hospitals, educators, everybody across the state all week is, regretfully, it’s actually more lucrative for many Kentuckians and Americans to not work than work.”
He went on: “So we have a workforce shortage and we have raising inflation, both directly related to this recent bill that just passed.”
McConnell’s comments reflect longstanding GOP concerns about disincentivizing people from returning work as a result of issuing direct payments and federal unemployment benefits. Democrats approved a massive $1.9 trillion stimulus package in March, arguing many households needed immediate financial aid from the government.
No Republicans voted for the relief package. The unemployment rate has steadily fallen to 6%, and new claims have dropped for four weeks in a row.
But employers are growing alarmed over worker shortages, particularly those in the restaurant sector, while shortages of commodity goods are causing massive price increases in certain pockets of the economy. The trends caused the White House to defend its policies on Thursday. White House Deputy Press Secretary Karine Jean-Pierre said there was “little evidence” that enhanced unemployment insurance was enticing people away from work.
Some economists note that a key feature of a labor shortage – rising wages – is not in evidence, as businesses typically take that step to lure job-seekers from a scarce pool.
“When you don’t see wages growing to reflect that dynamic, you can be fairly certain that labor shortages, though possibly happening in some places, are not a driving feature of the labor market,” Heidi Shierholz, economist and director of policy at the left-leaning Economic Policy Institute, wrote on Twitter. “And right now, wages are not growing at a rapid pace.”
Federal Reserve Chairman Jerome Powell weighed in on the issue last week at a press conference. He said potential factors that could explain the shortage include a lack of childcare, lingering COVID-19 fears, and school closures.
“We don’t see wages moving up yet. And presumably we would see that in a really tight labor market,” Powell said. “And we may well start to see that.”
The inflation that economists and the Federal Reserve have been warning of for months has arrived.
The Personal Consumption Expenditures price index – among the most popular measures of nationwide price growth – rose in the first quarter to 3.5% from 1.7%, the Commerce Department said Thursday. The reading marks the second-fastest pace of price growth since 2011, surpassed only by a 3.7% rate in the third quarter of 2020.
Core PCE inflation, which leaves out volatile food and energy prices, rose to 2.3% in the first quarter from 1.3%.
The stronger inflation was largely attributed to the quarter’s economic rebound. US gross domestic product grew at an annualized rate of 6.4% in the first three months of 2021, according to the Commerce Department. That rate signals the second-strongest quarter of expansion since 2003, surpassed only by the record-breaking surge seen in the third quarter of last year.
The quarter ending in March saw stimulus passed by former President Donald Trump and President Joe Biden drive a sharp increase in spending. Widespread vaccination and falling COVID-19 case counts also boosted economic activity as governments eased lockdowns and businesses reopened.
The uptick in price inflation mirrors a similar signal from the Consumer Price Index from earlier in April. The inflation gauge rose 0.6% from February to March, slightly exceeding economist forecasts. More remarkable was a 2.6% year-over-year gain that market the strongest jump in price growth of the pandemic era.
Inflation was at the center of the debate over new stimulus, with Republicans and even moderate Democrats warning that a colossal package could spark rampant price growth and create a new economic crisis.
On the surface, the latest data suggests those warnings were correct. Yet the Fed has long anticipated that any spike in inflation through the recovery would be “transitory” and quickly fade. For one, year-over-year measures of price growth are somewhat skewed by data from the first months of the pandemic, when initial lockdowns saw price growth turn negative. That dynamic, known as base effects, leaves a lower bar for the present-day readings to clear.
“An episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation into the future,” the central bank chief said Wednesday. “It is the Fed’s job to make sure that does not happen.”
The Fed adjusted its framework in August to pursue inflation that averages 2% over time, as opposed to targeting steady price growth at a 2% rate. The change signals the central bank will allow inflation to run above the 2% threshold for some time as the country recovers. Powell has said that the low-inflation environment of the late 2010s suggest the Fed can run the economy hot in hopes of reaching maximum employment.
The Biden administration spent much of its first days in office testing how further stimulus might drive inflation higher. No modeled scenario saw price growth surge out of control, The New York Times reported on Wednesday.
Still, the report said repeatedly that White House and Treasury officials are “worried” about the issue.
The inflation debate has loomed large over the White House since before President Joe Biden was even inaugurated. The president unveiled a $1.9 trillion relief proposal in January, pitching the plan as an additional boost for the US economic recovery. Largely Democrat-affiliated economists have fiercely debated the inflation risks of such large deficit-financed spending, led by former Obama- and Clinton-administration official Larry Summers.
Democrats largely backed the measure, saying the risks of retracting government support were greater than the risks of spending too much. But Republicans – and even some moderate Democrats – balked at the hefty price tag and cited fears that another set of stimulus checks could spark a dangerous surge in inflation.
“This is the least responsible fiscal macroeconomic policy we’ve had for the last 40 years,” Summers said in a March interview with Bloomberg TV, adding the measures are a product of “intransigence” among Democrats and “irresponsible behavior” among Republicans.
Democrats went ahead without any Republican votes, passing the bill via reconciliation, and Biden signed it into law on March 11. Still, the stimulus push wasn’t without some trepidation. A handful of officials in the Treasury Department spent several months modeling how Americans would deploy new fiscal support, and whether any outcome could lead to stifling inflation, according to The Times. Treasury Secretary and former Federal Reserve Chair Janet Yellen even helped create the models.
Their observations were encouraging and lend new support to Biden’s latest spending proposal. The team tested a range of potentialities for how quickly Americans would spend stimulus, where they would deploy cash, and how the labor market’s recovery would affect inflation. Yet no outcome saw inflation charge out of the Fed’s control and risk a new recession, the Times reported.
The findings have been hinted at in statements from the White House and the Treasury in recent weeks. Long-term scarring in the labor market poses a greater risk than inflation, Yellen told ABC’s “This Week” in March. Economic reopening is expected to drive a jump in prices, but the effects will likely be temporary and fail to drive sustained inflation, she added.
The administration’s Council of Economic Advisors mirrored Yellen in a Monday blog post. A temporary rise in inflation is consistent with trends seen after other major events like wars or past labor-market rebounds, economists Ernie Tedeschi and Jared Bernstein said. The White House will continue to monitor consumer prices, but it expects inflation to fade as actual price growth “runs more in line with longer-run expectations,” they added.
Fed Chair Jerome Powell has repeatedly backed up such an outlook. The central bank chief said last month that the Fed will “be patient” in monitoring inflation and eventually lifting interest rates. The most likely scenario during the recovery is that prices move higher but fail to stay elevated as the country enters a new sense of normalcy, Powell said in early March.
Although the Fed operates independently from the executive branch and doesn’t play a role in fiscal spending, officials testing inflation scenarios told the Times that the Biden administration trusts the Fed to intervene and stave off price growth should it accelerate faster than expected.
The latest data signals the country is far from any sort of inflation scare. The Consumer Price Index – a popular gauge of overall inflation – rose 0.6% in March as stimulus, reopening, and vaccination fueled stronger economic activity. Economists expected a 0.5% gain.
Consumer prices rose 2.6% year-over-year, also exceeding estimates. The measure is skewed somewhat by year-ago data, since prices initially dropped when the pandemic first slammed the US economy. Those readings present a lower bar for year-over-year inflation. Though the data points to stronger inflation, price growth still has a ways to go before it trends at the Fed’s above-2% level and warrants serious concern.
That opening paves the way for additional spending. Biden unveiled a $2.3 trillion infrastructure proposal late last month that includes funds for nationwide broadband, improved roads and bridges, and affordable housing. The package is expected to be spent over eight years, compared to the weeks-long rollout seen with much of Biden’s stimulus plan. Such long-term deployment would present little inflationary risk, and Biden has portrayed the plan as an investment in American industry, jobs, and research as opposed to an emergency relief measure.
The March uptick in inflation, however, does signal that price growth is trending higher. Future CPI readings are set to be closely watched releases as the administration balances its spending goals with a red-hot economy. Economists and officials are anticipating stronger inflation. How price growth trends from there will determine whether the Biden administration was successful or created new risks.
Prices of common consumer goods rose faster than expected last month as widespread reopening accelerated the economic recovery.
The Consumer Price Index, a popular measure of overall inflation, gained 0.6% from February to March, according to data published by the Bureau of Labor Statistics. Economists surveyed by Bloomberg had expected an increase of 0.5%. The reading follows a 0.4% gain in February. A 9.1% surge in gasoline prices drove the bulk of the uptick.
Core inflation – which excludes volatile energy and food prices – increased 0.3%. That also exceeded the median estimate of a 0.2% month-over-month jump.
Consumer prices jumped 2.6% year-over-year, marking the largest increase since the pandemic began. The reading also exceeded the economist forecast of a 2.5% climb. The measure is somewhat skewed, however, by data from March 2020, when prices declined when the pandemic first froze economic activity. That drop artificially lifts the year-over-year figure by giving the latest measure a lower bar to clear.
“We expect year-over-year inflation to remain steady as the upward pressure of a fast-reopening economy and fiscal stimulus is counteracted by somewhat tougher year-over-year comps,” David Kelly, chief global strategist at JPMorgan Asset Management, said.
Still, the increases suggest inflation will strengthen through the economic recovery, as expected. Price growth trended below the Federal Reserve’s 2% target for decades, signaling consistently weak demand. Now, with businesses reopening, consumers deploying stimulus-boosted savings, and hiring picking up, economists expect inflation to come in above 2% for some time.
The Fed anticipated such a bounce and has dampened concerns that inflation will run rampant. The central bank adjusted its inflation target in August to pursue above-2% inflation for a period of time to counter years of below-target price growth.
Fed Chair Jerome Powell has said that, while reopening will drive stronger inflation, the effect will likely be “transitory” and quickly fade as the economy enters a new normal.
“It is more likely that what happens in the next year or so is going to amount to prices moving up, but not staying up. And certainly not staying up to the point where they would move inflation expectations above 2%,” Powell said in early March, adding the central bank will “be patient” in waiting to pull back on its ultra-accommodative policy.
Americans, however, aren’t yet buying Powell’s message. The median expectation for one-year inflation rose to 3.2% last month, its highest point since 2014. The estimate for three-year inflation edged higher to 3.1% from 3%. Though the Fed hasn’t clarified how high it’s willing to let inflation run, 3% price growth would be the strongest since the early 1990s.
While it’s true that inflation expectations have steadily landed above actual inflation for decades, expectations alone can drive inflation higher. Businesses tend to lift prices and workers usually demand higher wages when the country expects stronger inflation over the next year.
President Joe Biden said on Tuesday he would safeguard the independence of the Federal Reserve, breaking with his predecessor, Donald Trump, who often tried pressuring the central bank to lower the cost of borrowing.
“Starting off my presidency, I want to be real clear that I’m not going to do the kinds of things that have been done in the last administration – either talking to the attorney general about who he’s going to prosecute or not prosecute … or for the Fed, telling them what they should and shouldn’t do,” he said at a White House news conference.
“I think the Federal Reserve is an independent operation,” he said, adding he does speak with Treasury Secretary Janet Yellen. The Treasury did not immediately respond to a request for comment.
The remarks reflect another way that the president is distancing himself from his predecessor by preserving the Fed’s traditional independence from the White House. Trump heaped criticism onto Powell throughout his term, assailing him as “an enemy of the state” and a “terrible communicator” from his now-suspended Twitter account.
Trump furiously tried pressuring Powell from raising interest rates while the economy was in the middle of its longest expansion in history in the years leading up to the pandemic. At one point, he suggested Powell may be a “bigger enemy” of the US than China.
Powell played a critical role designing the Fed’s stimulus programs as vast swaths of the economy shut down last year. He also encouraged Congress to continue approving more federal aid for struggling individuals, small businesses, and state and local governments.
“Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future,” he told NPR recently. Powell, a Trump nominee, has also downplayed the inflation risks stemming from the $1.9 trillion stimulus package.
Powell’s term as Fed chair expires in 2022, and Biden must decide whether to keep him onboard.