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President Joe Biden announced on Monday that he would nominate Fed chair Jerome Powell for a second term as head of the central bank. This preserves continuity and likely keeps financial markets chugging along smoothly, avoiding a disruptive adjustment at a time when Biden is particularly vulnerable on economic issues. And since the main competitors for the role would likely have been even more dovish on inflation than Powell, this sends a signal to markets that the administration is taking inflation seriously.
Certainly, the American people are taking inflation seriously. As we reported over the weekend, the cost of an average Thanksgiving dinner is up 14 percent year over year. The price of turkey is up more than 24 percent. A Gallup survey released on Monday indicated that the share of Americans saying inflation is the number one problem in the country is at the highest since 2001. The last time a significantly larger share put inflation as the biggest issue was back in 1985, according to the folks at Gallup.
Even economists have started to notice inflation. The consensus among professional forecasters has been that although inflation has been elevated this year, it would return to the Fed's target rate of two percent at some point in the not-to-distant future. No longer. In the latest Survey of Professional Forecasters, a quarterly survey run by the Philadelphia Fed, the median projection for the Personal Consumption Expenditure Price Index over the next ten years is 2.3 percent. In other words, the Fed has lost the confidence of forecasters that it can keep inflation at two percent on average.
On Wall Street, the view is that the re-nomination will free Powell to become more hawkish on inflation, suggesting a steeper path for rate hikes and the taper of bond purchases. That may be a bit premature. While Powell has switched gears quickly before, notably from his tightening stance in Trump's early years to the current accommodative position, the Fed chair has shown very few signs of being willing to relax his vague but often repeated commitment to full employment in the name of fighting inflation. Wall Street thinks this was a political stance, aimed at appearing progressive to win a second term. We're not so sure.
– Alex Marlow & John Carney
Breitbart News Network
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