Maxine Waters’ HR 2543 gives me the impression that Congress does not understand banking …

Jerome Powell, chairman of the Board of Governors of the Federal Reserve System (“Board” or “FRS”), today finished up his semi-annual tour of Capitol Hill when he presented to the U.S. House Committee on Financial Services the status of the Board’s monetary policy as it impacts the US economy.

I have watched hundreds of Congressional hearings over the past twelve years and quite frankly I never expect very much substance.  I would advise that if you can’t read Mr Powell’s entire report, then his written testimony should suffice.

The chairman of the committee, Maxine Waters, Democrat of California, announced early in the hearing that a bill she sponsored, the Federal Reserve Racial and Economic Equity Act (HR2543), had passed the House and is now sitting in the Senate.  The intent of the bill is to add additional demographic reporting requirements; to modify the goals of the Federal Reserve System, and for other purposes.”

Specifically, HR2543 would require the FRS to:

  1. Eliminate disparities across racial and ethnic groups regarding employment, income, wealth, access to credit;
  2. Conduct monetary policy and bank regulation in order to eliminate the aforementioned disparities;
  3. Conduct payment system operations in order to eliminate racial and ethnic disparities;
  4. Continue carrying out the Community Reinvestment Act of 1977; and
  5. Conduct comparisons across different demographic groups including race, ethnicity, gender, and educational attainment.

I have come to accept Congress’ authority to create a central bank system pursuant to Congress’ responsibility under the U.S. Constitution to regulate the value of money.  I can understand a constitutional argument that Congress used an implied or ancillary power to create the FRS.  Using the central bank as a social agency for diversity, equity, and inclusion I can’t fully embrace.

The Constitution does not provide for a central bank much less for a central bank that has as part of its mandate the mitigation of harm in the banking system to ethnic minorities. The boat has long left the harbor for any mitigation of banking harms to blacks.

Blacks were not a part of America’s capital and natural resources allocation plan dating back to the 1600s.  The exponential increase in capital holdings by whites are an expected result of human behavior and lineage maintenance.  Due to slavery and the Jim Crow era, Blacks were doomed to remain behind in the capital holdings race.  In order to participate in true banking activity, the entire population of blacks in America for its first 300 years would have to have owned land, waterways, access to minerals, and access to fair labor markets in order to trade for credit.

What Mrs Waters has proposed in her bill is about the best that the black political class can do in Washington.  Even if the measure passes in the Senate, the necessary reallocation of capital to blacks would not occur. 

HR 2543 serves no other purpose but to rile up Senate Republicans and make them the scape goat for failed policy.      

Alton Drew

23 June 2022

 Disclaimer: This blog post should not be construed as legal advice or an agreement to provide legal or political analysis.  To set up a consultation, contact us at altondrew@altondrew.com.

We appreciate your readership and support.  Feel free to donate to us via PayPal or support our advertisers. We are also seeking sponsors for our blog.  Contact us at altondrew@altondrew.com.

Are Democrats missing an opportunity to strengthen their inflation argument?

Jerome Powell, chairman of the Board of Governors of the Federal Reserve System (FRS), today testified before the U.S. Senate banking and finance committee on the state of the FRS’ monetary policy.  One of the main points of questioning by the senators was the issue of inflation. 

Republicans have been asserting that loose monetary policy, specifically the FRS’s delay in raising the federal funds rate, and expansion of its balance sheet of agency and mortgage-backed securities, combined with the Biden Administration’s spending are at the heart of U.S. inflation.

Democrats’ main assertion is that companies have been taking advantage of the American consumer by increasing prices and taking profits.

We understand that in a political environment each side of the aisle aims to tug at enough electorate heart strings in order to secure votes in the fall.  I don’t pretend to be a statistician, but a back of the napkin analysis of growth in the money supply and changes in the consumer price index tells me that Republicans should include other factors in their cause of inflation analysis, and that Democrats need to trust Americans more by sharing and explaining the numbers.

According to data from the FRS, between January 2021 and April 2021 M2 money supply increased an average of 1.3%, month-over-month while inflation increased an average of 0.5% month-over-month during that same time period.

But between January 2022 and April 2022, while M2 money supply increased an average of .003% month over month, inflation increased 0.7% month over month.  The money supply was at a dead crawl while consumers continued to see price increases at a faster rate versus the same period last year.

I admit the sample is small.  I am trying to be fair to the Biden administration by reconciling his time in office with available 2022 FRS data on money supply.  Hopefully my small exercise demonstrates that there is some room for the Democrats to strengthen their arguments on the cause of inflation and that pricing behavior on the part of firms needs to be taken into consideration.

Alton Drew

22 June 2022

Disclaimer: This blog post should not be construed as legal advice or an agreement to provide legal or political analysis.  To set up a consultation, contact us at altondrew@altondrew.com.

We appreciate your readership and support.  Feel free to donate to us via PayPal or support our advertisers. We are also seeking sponsors for our blog.  Contact us at altondrew@altondrew.com.

Fed chair Jerome Powell addresses the US Senate on monetary policy …

“Chairman Brown, Ranking Member Toomey, and other members of the Committee, I appreciate the opportunity to present the Federal Reserve’s semiannual Monetary Policy Report.

I will begin with one overarching message. At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.

I will review the current economic situation before turning to monetary policy.

Current Economic Situation and Outlook
Inflation remains well above our longer-run goal of 2 percent. Over the 12 months ending in April, total PCE (personal consumption expenditures) prices rose 6.3 percent; excluding the volatile food and energy categories, core PCE prices rose 4.9 percent. The available data for May suggest the core measure likely held at that pace or eased slightly last month. Aggregate demand is strong, supply constraints have been larger and longer lasting than anticipated, and price pressures have spread to a broad range of goods and services. The surge in prices of crude oil and other commodities that resulted from Russia’s invasion of Ukraine is boosting prices for gasoline and fuel and is creating additional upward pressure on inflation. And COVID-19-related lockdowns in China are likely to exacerbate ongoing supply chain disruptions. Over the past year, inflation also increased rapidly in many foreign economies, as discussed in a box in the June Monetary Policy Report.

Overall economic activity edged down in the first quarter, as unusually sharp swings in inventories and net exports more than offset continued strong underlying demand. Recent indicators suggest that real gross domestic product growth has picked up this quarter, with consumption spending remaining strong. In contrast, growth in business fixed investment appears to be slowing, and activity in the housing sector looks to be softening, in part reflecting higher mortgage rates. The tightening in financial conditions that we have seen in recent months should continue to temper growth and help bring demand into better balance with supply.

The labor market has remained extremely tight, with the unemployment rate near a 50‑year low, job vacancies at historical highs, and wage growth elevated. Over the past three months, employment rose by an average of 408,000 jobs per month, down from the average pace seen earlier in the year but still robust. Improvements in labor market conditions have been widespread, including for workers at the lower end of the wage distribution as well as for African Americans and Hispanics. A box in the June Monetary Policy Report discusses developments in employment and earnings across all major demographic groups. Labor demand is very strong, while labor supply remains subdued, with the labor force participation rate little changed since January.

Monetary Policy
The Fed’s monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people. My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation. We are highly attentive to the risks high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2 percent objective.

Against the backdrop of the rapidly evolving economic environment, our policy has been adapting, and it will continue to do so. With inflation well above our longer-run goal of 2 percent and an extremely tight labor market, we raised the target range for the federal funds rate at each of our past three meetings, resulting in a 1-1/2 percentage point increase in the target range so far this year. The Committee reiterated that it anticipates that ongoing increases in the target range will be appropriate. In May, we announced plans for reducing the size of our balance sheet and, shortly thereafter, began the process of significantly reducing our securities holdings. Financial conditions have been tightening since last fall and have now tightened significantly, reflecting both policy actions that we have already taken and anticipated actions.

Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2 percent. We anticipate that ongoing rate increases will be appropriate; the pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy. We will make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as possible. Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored.

Making appropriate monetary policy in this uncertain environment requires a recognition that the economy often evolves in unexpected ways. Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook. And we will strive to avoid adding uncertainty in what is already an extraordinarily challenging and uncertain time. We are highly attentive to inflation risks and determined to take the measures necessary to restore price stability. The American economy is very strong and well positioned to handle tighter monetary policy.

To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum-employment and price-stability goals.

Thank you. I am happy to take your questions.” — Jerome Powell

Federal Open Market Committee News Scan …

Board of Governors of the Federal Reserve System, Jerome Powell. Recently, Fed Board chair Jerome Powell addressed price stability and the monetary policy rate response to it. “The latest FOMC statement also indicates that the Committee expects to begin reducing the size of our balance sheet at a coming meeting. I believe that these policy actions and those to come will help bring inflation down near 2 percent over the next 3 years.” See speech here.

Board of Governors of the Federal Reserve System, Christopher J Waller. Recently, Governor Christopher J. Waller gave a speech discussing the role of monetary policy in combating rising rent costs and house prices.  “Based on various measures of asking rents, some recent research suggests that the rate of rent inflation in the CPI will double in 2022.3 If so, rent as a component of inflation will accelerate, which has implications for monetary policy.” See speech here.

Federal Reserve Bank of St. Louis, Jim Bullard. “St. Louis Fed President Jim Bullard discussed the upside surprise on inflation in recent months and the Fed’s response. He spoke at the Asian Investment Conference in an interview that was recorded March 22.” See video and article here.

The Federal Open Market Committee (FOMC) is responsible for open market operations, one of the three primary monetary policy tools that are used to influence the federal funds rate. Open market operations involve the sale and purchase of securities by a central bank in the open market. The federal funds rate is the overnight rate that a member bank charges to another member bank when lending excess reserves.

While Powell’s hawkishness is the move in the right direction, it doesn’t negate the need to get rid of the Federal Reserve

On 21 March 2022, Jerome Powell, chairman pro tempore of the Board of Governors of the Federal Reserve, made comments about labor markets, inflation, and reduction in the balance sheet of the Federal Reserve System. Mr Powell acknowledged that the labor market is tight and that nominal wages are rising, particularly at the lower end of the wage distribution.  Given what he noted as the severe imbalance of supply and demand in the labor market, Mr Powell wants to use the Federal Reserve System’s monetary policy tools to moderate the growth in demand for labor.

Analysts and investors have been raising concerns about the Federal Reserve’s balance sheet.  Mr Powell noted in his comments that reducing the Federal Reserve System’s balance sheet could bring inflation to near two percent over the next three years.

The economy, according to Mr Powell, is in a position to handle tighter monetary policy and he stated his willingness to see the interbank overnight (fed funds) rate increase by more than 25 basis points at the next Federal Open Market Committee meeting.

I appreciate the hawkishness for one reason.  It pushes back on the desire by political factions to weaponize the fed funds rate.  The effective fed funds rate, a volume-weighted median of transactions level data collected from banks, has increased over four times from its long-term rate of .08% to a current 0.33%.  The fed funds rate is the overnight rate that banks charge each other for lending and borrowing excess reserves.  The rate sits near the middle of the .25% to .50% range recommended by the FOMC.

On its face, the recent effective funds rate may incentivize banks to seek returns from the interbank market versus purchasing Treasurys.  For example, the yield per day on a one-year Treasury bill is .00442% versus an overnight fed funds rate of 0.33%.  Putting those excess reserves into the bond market would call for much higher yields which in turn would call for a fall in asset prices and clamping down on the rise in prices.

The Federal Reserve System has at its disposal a number of monetary policy tools to nudge banks to the overnight trading range including open market operations; the discount window and discount rate; reserve requirements; interest on reserves; reverse repurchase agreements; and liquidity swaps, to name a few.

Even with its tools and noble statutory mandate of pursuing stable prices and full employment, the Federal Reserve System still represents Congress’ abdication of its responsibility for coining money and regulating its value. Yes, Congress can authorize the mechanisms it deems necessary for meeting this statutory duty, but where the taxpayer/consumer/electorate is seeing an erosion of her spending and saving power, might it be time for Congress to reassert its statutory duty versus allowing the Federal Reserve System to act as a coordinator of bank cartel activity?

Alton Drew

23.03.2022

 For consultation on how this political or legal event impacts your foreign exchange trade, request an appointment at altondrew@altondrew.com.

Call to action: To support this page, please visit our advertisers. You may also visit the sidebar and make a donation via PayPal.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

While awaiting Jerome Powell’s appearance before the Senate, some thoughts on partisanship and policy rates…

The only interest that the Republican and Democratic parties have in monetary policy are how best to weaponize interest rates to justify reckless spending and oppressive taxes. Low interest rates allow the U.S. Treasury to issue bonds in return for cash that is less expensive to service. The Federal Reserve Bank of New York places these IOUs into the market where commercial banks and other accredited market participants buy these IOUs and hold them in their portfolios as collateral in order to support their own future borrowing needs.

Democrats would like to see the interbank, overnight lending rate stay low. A low overnight rate incentivizes banks to lend money in the credit markets, theoretically putting credit and capital into the hands of end users who can deploy that money into productive and non-productive use. Of course, not all this cheap money goes into the hands of entrepreneurs but also into the hands of end-use consumers that want to leverage a trip to The Bahamas now and pay for it later out of their future income. In addition, Democrats can create and subsidize programs aimed at meeting short term electorate needs i.e. stimulus, or subsidize larger projects like renewable energy, which may assist some consumers but is really aimed at Democratic donors in the energy industry that may need R&D and other funding to aid their industry’s development.

Republicans, for all their smaller government rhetoric, don’t get off the hook. Although increased rates could help their banking industry constituents increase their income, low interest rates means corporations can get the cheap financing that enables business expansion.

The battle between Democrats and Republicans boils down to which constituency benefits the most from government’s overall need to expand.

During today’s Senate hearing where Federal Reserve chairman Jerome Powell presents the Fed’s semi-annual monetary policy report, you will notice that none of the banking committee members will call for an abolishment of the central bank. As much as elected and central bank officials reiterate the Federal Reserve’s political independence, the reality is that the Federal Reserve operates in a political environment, navigating that channel between both sides of the political spectrum. All one has to do is look at its increasing foray into social issues including climate change and racial equality in credit access to see that the Federal Reserve is influenced by the political climate.

Both sides of the aisle during today’s hearing will wail on about the obvious elephant in the room: inflation. If the Democratically-controlled Senate and House are so concerned about inflation, then they should not oppose a decline in the demand of the M2 money supply caused by an increase in the use of alternative currencies that transfer economic energy between autonomous individuals. The increase in money supply is the result, in part, of politicized demand which encourages low cost money which in turn moves toward low return, unproductive activity. Just go on the internet and you see plenty of examples.

The best inflation fighter in the short term is the use of alternative currencies for payments. Increasing the supply and use of alternatives decreases demand for a central bank’s credit-fiat currency.

Alton Drew

03.03.2022

Call to action: To support this page, please visit our advertisers. You may also visit the sidebar and make a donation via PayPal.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

Interbank Market News Scan: Fed chairman Jerome Powell to confirm interest rate lift-off this month.

Interbank, Federal Reserve, House Financial Services, Jerome Powell. Federal Reserve Chairman Jerome Powell sees strong labor demand but subdued labor supply. Inflation running above the Fed’s two percent target and continuing supply bottlenecks has set the table for the Fed’s policy rate decision later this month. See testimony here. Source: Board of Governors of the Federal Reserve.

Interbank, SWIFT, CIPS, China, yuan. “Local firms are now talking about how to improve and develop CIPS payment services, which will boost the internationalization of the Chinese yuan and help companies do business overseas. But the SWIFT ban on Russia may boost the development of non-US dollar and non-SWIFT transactions, including CIPS. It may also stimulate e-yuan, China’s official digital currency.” See article here. Source: Shine.cn.

Interbank, Russia, foreign investors. “The Russian stock market has been shut for days and officials are barring any cash going to foreign investors. Funds from London to New York have suspended trading. As President Vladimir Putin steps up the attack on Ukrainian cities and tougher sanctions take effect, the country’s financial ties to the outside world are breaking down.” See article here. Source: Financial Post.

Interbank, Egypt, Ukraine, capital flight. “Egypt has seen hundreds of millions of dollars leave its treasury markets since the Russian invasion of Ukraine last week as investors flee emerging markets for safer pastures, two bankers with knowledge of the matter said.” See article here. Source: Yahoo! Finance.

Foreign exchange rates of interest as of 11:00 am AST

EUR/USD=1.11658

GBP/USD=1.33797

USD/CAD=1.26912

USD/MXN=20.5265

USD/JPY=114.937

USD/CNY=6.31083

USD/INR=75.4949

USD/NGN=415.524

Source: OANDA

Dollar Index=97.70

Source: MarketWatch

When analyzing fiscal impact on exchange rates, traders should focus on government expenditure data not narrative …

Political analysis should follow this chain of events. First, there is the world view or philosophy of state leadership. The party or strong man in charge imposes his or her world view on his society. She takes the next step and creates a narrative, writes a story that is consumed by parts of society. There will be conflicting narratives promoted by factions, and via the political system, a winner will be determined. With political power in hand, the victorious faction will draft the policy or action plan that activates the narrative. And finally, to make sure that there is no confusion as to what is the prevailing narrative, it is codified in law for all to read or hear.

The Democratic and Republican parties have been vocal about their world views on inflation. The Republicans argue that Mr Biden’s spending under his American Rescue Plan is leading to high rates of inflation. The Republicans energize their argument by citing the last Consumer Price Index print which came in at 7% year-over-year for December 2021. This was up from the November 2021 print of 6.8%.

The Democrats rebut by arguing that spending under the American Rescue Plan will provide income supports that eventually lead to normal employment levels. Rather than increase consumer prices, the American Rescue Plan, along with the Build Back Better legislation sitting in the Senate, will ease long term prices. Americans have been facing high consumer prices in part due to clogged supply chains and Democrats have been arguing since last spring that this government investment will expand capacity and produce lower prices.

Traders should cut through the political banter and look at the data. Data from the U.S. Bureau of Economic Analysis shows that as a percentage of gross domestic product, federal government spending has held around 7% between 31 March 2021 and 31 December 2021. Actual dollar spending has declined during this period. First quarter 2021 spending was approximately $1,375.2 billion. Federal spending declined in the second quarter 2021 to $1,356.7 billion and fell further in the third quarter 2021 to $1,339.1 billion. During this period, the MarketWatch dollar index signaled dollar strength with the dollar going from 93.23 on 31March 2021 to 95.97 on 31 December 2021.

Along with the dollar strengthening over this period came inflation. Data for the U.S. Bureau of Labor Statistics shows that the Consumer Price Index went from 2.6% in March 2021 to 7.0% in December. Mr Biden could deflect Republican attacks by implying that inflationary pressures are a reflection of the growing money supply spurred on by asset purchases made by the central bank since March 2020. That would leave a few in Washington scratching their heads since the man who led the $120 billion a month purchase of Treasury and agency mortgage-backed securities, Jerome Powell, was nominated by Mr Biden for a second four-year term. In addition, Democratic leadership in the U.S. House and U.S. Senate have been singing Mr Powell’s praises for his interventionist policies.

Granted, the increase in M1 money supply has gone from $18,669.2 billion in March 2021 to $19,874.8 billion in November 2021 (latest figure available) making Mr Powell’s actions an easy target for the “too much money chasing too few goods” argument, but Mr Biden and in particular the progressives in the Congress will need Mr Powell’s cooperation to fund their Build Back Better agenda. The Fed is the Treasury’s underwriter and Progressives can ill afford politics that upset its banker.

The irony is that Mr Biden has showed no penchant to artfully deflect criticism from Republicans to the Fed for his handling of inflation. However, for the trader that is neither here or there. The question should be whether proposed fiscal policy will have an impact on the direction of foreign exchange rates and if so, in what direction.

Alton Drew

20.01.2022

For consultation on how this political or legal event impacts your foreign exchange trade, request an appointment at altondrew@gmail.com.

Call to action: To support this page, please visit our advertisers. You may also visit the sidebar and make a donation via PayPal.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

No surprises out of Powell’s nomination hearing …

The real economy isn’t supposed to support everyone. It is supposed to employ an optimal number of employees that produce the most income at the least cost for the individuals investing the capital. This is my response to the expected drivel coming out of U.S. Senator Sherrod Brown, Democrat of Ohio, during today’s hearing on the re-nomination of Jerome Powell as chairman of the Board of Governors of the Federal Reserve. Senator Brown in his opening statement expressed his concern that Wall Street banks were enjoying over a decade of high profits while individuals on Main Street were facing the threat of unemployment and rising inflation.

Senator Elizabeth Warren’s line of questioning followed a similar vein to Mr Brown, although the Massachusetts Democrat seemed to go all in on “corporations” versus her usual culprits, the banks. Mr Powell probably determined it was best not to interrupt Mrs Warren by pointing out that the Board of Governors has oversight of banks and not your run-of-the mill corporations. Silence is best. Let her ramble on. Besides, Mrs Warren was likely on a stage of satisfaction having her favorite Fed governor (Lael Brainard) as nominee for the Board’s vice-chair, thus having an embedded check on a “dangerous man” (Warren’s words) in the form of Mr Powell.

If any topic out of the Senate was going to peak trader interest, it would be the topic of inflation. Politically, about a third of the Senate would love to have the ability this election year to say that they did something about inflation, but the Senate along with the House of Representatives, punted away their constitutional power over coin and commerce over a century ago. Although Senator Richard Shelby, Republican of Alabama, and Senator Jack Reed, Democrat of Rhode Island, raised the issue of inflation and the Federal Reserve’s policy timing to address it, none of the senators offered policy recommendations or hinted at legislation designed to mandate requirements for addressing inflation. A number of senators acknowledged the Federal Reserve’s dual statutory mandate of bringing about price stability and generating full employment, but that was the extent of serious discussion on inflation.

In just under 14 hours from this writing, the US Bureau of Labor Statistics will issue its year-over-year estimate on overall inflation. Consensus forecast is at seven percent, relatively in line with last month’s annualized rate of 6.8%. While I don’t do market analysis here, I expect that after the inflation print, the morning will be filled with banter on whether the Federal Reserve will have three rate increases or even four.

Otherwise, Mr Powell will be advanced from the Senate banking committee to the full floor of the Senate where he will likely see his nomination approved. He will likely look more hawkish. He may not have a choice if tomorrow’s number ends up being what we expect.

And as for the usual drivel on the economy and the working man, the inflation number will provide the usual fodder for campaign messaging.

Alton Drew

11.01.2022

Call to action: To support this page, please visit our advertisers.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

At first blush, what I expect to hear from the Senate banking committee regarding re-appointment of Jerome Powell

Given that President Joe Biden has decided that Jerome Powell is his choice for chairman of the Board of Governors of the Federal Reserve, I expect Mr Powell will garner a sufficient number of votes after today’s re-appointment hearing from Senate Democrats and Senate Republicans for approval for another four-year term. Senator Elizabeth Warren, Democrat of Massachusetts, will likely again make her feelings clear about how dangerous she believes Mr Powell’s bank supervision policies are for the American public. The assertions will make for some C-SPAN TV time drama but that will be about it.

I expect, based in part on his prepared remarks, that Mr Powell will describe a growing economy that has managed to create a strong job market. He is prepared to address the consequences of that growth among which are, in his words, supply and demand imbalances and bottlenecks accompanied by elevated inflation.

Inflation, I suspect, will be today’s hot topic. One-third of the U.S. Senate and all members of the U.S. House of Representatives are up for re-election this November. They want to go home to constituents this campaign season with positive news on when inflation is expected to dissipate. Wage inflation may be noted by Mr Powell where the U.S. Bureau of Labor Statistics reported in its last jobs situation report that non-farm payroll hourly earnings are at $31.31, up $.19 from the November jobs report. With unemployment at 3.9% and the addition of 199,000 non-farm payroll jobs, there is an argument that can be made that the economy is facing a full-employment scenario, thus fueling the probability of increased wage inflation.

For the twelve months ending November 2021, the U.S. experienced 6.8% inflation in all goods and services. Mr Powell had the good political sense to dump the word “transitory” as Americans expect no relief on inflation over the next one to three years as the Federal Reserve Bank of New York reported yesterday.

I would advise retail foreign exchange traders to keep their ears open for hints further refining the timing of the beginning of rate hikes as well as firmer indication as to how many are to be expected. Democratic senators will try to score political brownie points by spinning a narrative about what they can do regarding inflation, including touting support for Mr Biden’s “Build Back Better” bill which, they will argue, expands American transportation and productive capacity, thus alleviating inflationary pressures. Expect Republicans to push back on the Democratic narrative, arguing that Fed tapering of Treasury securities and agency mortgage-backed securities should have started sooner and move at a faster pace.

In reality, the most that the Senate can do for inflation and indirectly to impact the US currency is to move quickly on Mr Powell’s re-appointment, a done deal in my book.

Alton Drew

11.1.2022

Call to action: To support this page, please visit our advertisers.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.