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Grim Powell: Markets have been on edge this week ahead of Federal Reserve Chairman Jerome Powell’s speech at the annual central bank meeting in Jackson Hole on Friday.
Last year, Powell used a speech to reassure Americans that high inflation was likely to be temporary. It is expected to offer a more somber message this year, writes our Victoria Guido: The fight against soaring prices is far from over.
From Victoria: “Powell’s upbeat words at the annual conference in Jackson Hole in 2021 were followed by the biggest sustained rally in US prices in four decades. Since then, he has shifted gears and sharply emphasized the Fed’s commitment to ending high inflation by raising interest rates.
“But many investors think the Fed may blink before then, and are already expecting the central bank to start cutting borrowing costs later next year as a possible recession looms. This has sent market rates falling and equity prices rising from their June depths – exactly the opposite of what the central bank wants to see as it seeks to slow spending and investment.”
Work for him: Now that he’s back in Jackson Hole, Wyoming, Powell needs to convince the markets he’s serious when he speaks at a landmark conference of economists on Friday. If he can’t, it could undermine the Fed’s efforts to curb price spikes that have rocked the economy, pushed consumer sentiment to record lows and hurt President Joe Biden’s approval ratings.
“There are no easy answers,” said Torsten Slok, chief economist at private equity firm Apollo Global Management. “The Fed is very concerned about sending the right signal.”
Rich connection: Victoria notes that the Fed’s commitment to communicating with the public has had its ups and downs over the past year. As chairman, Powell shouldered much of the blame.
“Chairman Powell needs to reset market rate expectations, avoid last year’s mishaps and begin to rebuild the institution’s damaged credibility,” said Victoria Mohamed El-Erian, Allianz’s chief economic adviser.
A Glimpse of Hope: “I think we will hear [Powell] a little bit of a shift away from pessimism in the minutes about the risk of a recession,” said Adam Ozimek, chief economist at the public policy research firm Economic Innovation Group. “The data does not point to anything resembling a recession.”
THURSDAY “Victoria will be with you tomorrow with the latest news from Jackson Hole, while Sam and Aubrey are wrapping up the week from New York and Washington.” Send them your tips, story ideas, and feedback at [email protected], [email protected] or [email protected].
Second quarter GDP revisions and jobless claims data are out at 8:30 am
STUDENT DEBT CONSOLIDATION — The Biden administration announced that it was cancellation of up to $10,000 in student debt for millions of people and up to $20,000 in debt for low- and moderate-income borrowers who previously received a Pell Grant, our Michael Stratford and Eugene Daniels reported.
we indicated some of the anxiety in MM last week on whether debt forgiveness combined with a prolonged repayment pause could add to inflationary pressures.
“Pouring roughly half a trillion dollars of gasoline on an already burning inflationary fire is reckless,” former Obama CEA chairman Jason Furman reported on Twitter Wednesday.
Others defended the decision: “About half of the 27.5 million American households with student debt are made up of people who did not graduate from college,” said AFL-CIO Chief Economist Bill Spriggs. “Of those 13.9 million households, approximately 4.6 million will now be debt-free. It’s not about helping the privileged.”
HOLE IN FINANCIAL SERVICES AT HOME — Rep. Carolyn Maloney(DN.Y.) primary defeat on Tuesday night also marks the loss of a longtime senior Democratic member of the House Financial Services Committee, who in recent years has been a key advocate for tougher overdraft fee laws.
“It’s very difficult to imagine that bank overdraft legislation will become law in the next few years, but it’s worth noting who will take up the torch on bank overdraft issues,” said BTIG’s Isaac Boltanski. “Given that her overdraft bill has 60 co-sponsors, there must be a long list of willing torchbearers.”
Jesse Van Tol, president of the National Community Reinvestment Coalition, said Wednesday that Maloney will be greatly missed and urged his colleagues on the Hill and agency staff to remember her example. “Carolyn Maloney understands that the financial industry should be helping Americans build wealth, not focusing myopically on their own profits or on the highest net worth individuals and corporations they can find,” he said.
By POLITICO’s Jordan Kearney and Kyle Chaney: “Multiple Democrats is already vying for Rep. Carolyn Maloney’s top spot on the influential House Oversight Committee, less than 24 hours after her primary defeat to Rep. Jerry Nadler.
LONG COVID — We discussed how prolonged cases of Covid can have an effect stunning work record in the past. Kathy Bach of the Brookings Institution released a new study on Wednesday that put the number of people out of work due to lingering Covid symptoms at 2 million to 4 million — or 1.8 percent of the U.S. labor force. “This may seem incredibly high, but it does not contradict the experience of comparable economies,” Bach wrote.
BLACK UNEMPLOYMENT — Talmon Joseph Smith and Ben Casselman of the NYT: “Black Americans were hired at a much faster rate after the pandemic shutdown than after previous recessions. But as the Federal Reserve tries to ease the labor market in an attempt to curb inflation, economists worry that black workers will bear the brunt of the slowdown — and that without federal aid to soften the blow, the consequences could be severe.”
CRISIS PENDING — From Will Wade and Mark Chediak of Bloomberg: “About 20 million nationwide — about 1 in 6 American homes… have fallen behind in the payment of utility services. According to the National Association of Energy Assistance Directors (Neada), this is the worst crisis the group has ever documented.”
JEROME POWELL’S DILEMMA — WSJ’s Nick Timiros: “To counter the impact of declining global trade and persistent shortages of labor, goods and energy, central bankers can raise interest rates higher and longer than in recent decades, which could lead to weaker economic growth, higher unemployment and more frequent recessions.
“The current round of interest rate hikes by the Federal Reserve, which economists say has pushed the U.S. to the brink of recession, may be a taste of that new environment.”
also: The hawkish Fed in Jackson Hole is poised to end the dollar’s rally. (Bloomberg)
WHAT DOES CRYPTO BUY IN THE HAMPTONS? — Digital Asset Markets Association CEO Michelle Bond has been defeated in the GOP primary race to replace outgoing Rep. Lee Zeldin, a Long Island Republican who is trying to unseat New York Gov. Cathy Hachul in November. Despite endorsements from Donald Trump Jr., Kimberly Guilfoyle and Sen. Ted Cruz, and a 2-to-1 cash advantage, some of which was self-funded, Bond received just 27 percent of the vote, losing to the former Suffolk County Council. of Elections Commissioner Nick LaLotta.
The role of Bond as one of the roles of the crypto industry major voices in Washington did not help her in the campaign.
“I had many voters in the district, saying, “I’m so scared of how you’re making money,” she said in an interview Wednesday afternoon. “Crypto as an industry: we have a lot of work to do guys. We did not educate the population.”
Digital assets have played a big role in supporting Bond’s campaign, which was backed by a network of super PACs that were seeded — both directly and indirectly — by her boyfriend, Ryan Salome, a top executive at Sam Bankman-Fried’s FTX crypto exchange. One of those groups, The Stand For New York Committee, spent an estimated $850,000 in efforts to boost Bond and destroy LaLotta in the weeks leading up to the primary. Salameh is the group’s only donor.
said Bond there was no coordination between her company and outside groups.
“Given the close personal relationship between Mr. Salameh and Mrs. Bond, the utmost care and caution was exercised to ensure that all applicable laws were followed in establishing the Stand for New York Committee. The committee’s spending on Ms. Bond’s primary was done completely independently of her campaign and without any coordination,” the PAC said in a statement.
TEACHER + TORNADO = …TROUBLESOME? — WaPo’s Tory Newmeier and Jeremy Merrill: “Tether does not blacklist accounts associated with Tornado Cash. So far, the US government has not taken any action.”
Corn frittersa staple of the Mexican dinner table, played central to inflation rising to a 21-year high this month as the country nears what the central bank sees as peak consumer prices. — Bloomberg’s Maya Averbuch and Rafael Gayol
compass has never produced an annual return until now, but as the housing market began to cool and the tech industry came back to earth this year, The lack of even a clear path to profitability was exposed — Vice’s Maxwell Strachan