Jerome Powell looked ill at ease twice at his Wednesday press conference, with neither occasion related to monetary policy. While in the UK, Gove’s sidelining is the end of any chance of reform from this UK government.

Oddly when asked about his ‘hand in the till’, for bailing out his own family position in US Municipal bonds, Powell barely flinched. So why then is he worried?

The Powell press conference – what riled him?

He should be upset that the unemployment rate among black Americans is twice the level it was pre-COVID, at over 6% still. Given his pledge to hold the money taps open till that is fully recovered, which has for a while been clearly impossible without traumatic inflation, harming those same citizens, that should concern him.

This has long been Powell’s talisman to ward off the hard left, who are bent on two great goals, firstly taking over the reins of power by ejecting him and secondly finishing off Wall Street, as they so nearly did under Obama. Kamala Harris has not been in that triumphant position, at least not yet, so do the left really want to accept another deputy?

I doubt it.

So, the two questions Powell was riled by, were one about the new deputy governor, who has in this case the power to drive the regulatory agenda, mandated under Dodd Franks. Now, if one of Senator Warren’s acolytes can be inserted there, Powell will find life immeasurably harder. But for markets worse still,(the second question) was if Powell himself is chopped (Trump looked into it) before the recovery is complete. A weakened Biden has few other goodies to offer, if his portmanteau bill to throw $3 trillion of cash to his voters fails, scrapping a top Trump nominee at the Fed, might be the political trade-off.

While for Powell, as this all starts to get rather dirty, I could see him for the first time, asking if he was really that bothered. 

The US recovery – stimulus, markets, and minorities unemployment

The rest was all telegraphed passivity, still pumping enormous stimulus into the US economy, long after the recovery is running hot.

The US 10-year bond resumed its gentle lapping sound against the low-rate rocks, the storm of inflation roared on overhead, and the shadow of crossed fingers, fell on every vault.

The market has turned, in the US at least, from worrying about ‘when’, to guessing ‘how high’, with, given the global malaise, some confidence that “not very” is the answer.

Chop the Chair of the Fed, and that delicate illusion shatters. While whatever his politics, shipping Jerome off the transom, will hurt those same beleaguered minorities most. We should never underestimate the zeal of a convert, and he is that.  

Sidelining Gove

We have not seen that kind of zeal on these shores for over a decade. True, various short-lived moneymen have breezed through ministries, failing to unpick their form and function, scattered management speak and chums’ contracts around equally liberally, and left.

But lifting the drains, sorting the plumbing, fixing the boiler type reform, no, Gove is oddly (because he was useless at it) the last of those to fall. But he had the great merit of scaring people and driving legislation, which with the stodgy morass of public sector spend, is part of the battle. But the idea that he can either help on “levelling up” (which is just a catch phrase, and always will be) or pacify the Celtic fringe, hungry for real power (and unaware it does not exist) is risible.

Meanwhile, the Cabinet Office is quietly stripped of ministers, to be put back in the box marked “too difficult” once more.

A parallel with Chinese policies

This is like selling the inhabitants of East Turkmenistan down the road for some of Chairman Xi’s foggy promises on future coal fired power stations. It would be sad if it weren’t true.

Although China is now helping us return to a land beloved by investors, where money is scarce and hence actually earns a return. While risk still clearly comes in many forms; including Marxist morality, that is, if such a thing exists.

Big corporate failures do at least achieve that heightened risk awareness.   

Charles Gillams

Monogram Capital Management Ltd

🙂 You might already know that ‘dropping the pilot’ is a famous cartoon by Tenniel from 1890 when the Kaiser dropped Bismarck.