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

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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

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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: American bank CEOs squaring off with Senate banking committee at 10:00 am EST

Links you should follow …

Banks.  Chief executives of the six largest U.S. banks will testify in Congress Wednesday on oversight topics that include their response to the COVID-19 pandemic, diversity efforts and cryptocurrencies. CEOs of 6 biggest U.S. banks to testify in Senate about COVID-19 moves, culture – UPI.com

Central banks. New Zealand followed in the footsteps of Canada to flag a potential interest-rate increase next year as central banks begin to tip toe away from their emergency monetary settings. Slowly But Surely, Central Banks Are Signaling Policy Shifts – Bloomberg

Banks. Wells Fargo & Co. has invested in The Harbor Bank of Maryland and a Washington, D.C., institution as part of a 2020 plan to commit $50 million to Black-owned banks around the country. Wells Fargo & Co. invests in The Harbor Bank of Maryland in commitment to Black-owned banks – Baltimore Sun

Central banks. Regional Federal Reserve Banks are taking an increasingly “alarming” stance on politically charged issues like racial justice, according to Sen. Pat Toomey, a Republican from Pennsylvania who is the ranking member of the Senate Banking Committee. Wokeness at Fed’s regional banks puts central bank independence at risk | Fox Business 

Banks. Bitcoin’s price has continued to fluctuate, falling by $3,000 in a matter of hours, with big banks divided on how to approach the cryptocurrency. Bitcoin Price Rollercoaster Continues as Banks Unsure How to Approach the Crypto (msn.com)

Central banks. Eric Robertsen of Standard Chartered Bank sees some upside for commodity currencies with inflation rising. He doesn’t expect the Fed to have any “concrete announcement” on tapering before September. A few G10 central banks will ‘dial back’ bond purchasing programs later this year: Standard Chartered (msn.com) Payment systems. Commercial and central banks across the world are now using blockchain technology for payment processing and issuing of their digital currencies. The technology enables cross-border payments that are less expensive and faster as compared to traditional systems. Rapid Demand for Digital Payment Systems Being Fueled by Increasing Market Growth In Blockchain – MarketWatch

Foreign exchange rates of interest …

Currency PairsRates as of 10:45 am AST 26 May 2021
EUR/XCD3.3055
USD/XCD2.7000
CAD/XCD2.2402
EUR/JMD181.2040
USD/JMD148.0130
CAD/JMD122.8050
USD/DOP56.4454
USD/HTG88.6591
Source: OANDA

Interbank market, central banks, foreign exchange: Will Joe Biden, GOP meeting signal increased public capital spending?

The strategy takeaway …

Joe Biden positions himself as mediator as GOP presents a non-stimulative pandemic plan.

President Joe Biden is scheduled to meet with today at 5 pm EST with 10 centrist and conservative Republican senators to discuss a $619 billion pandemic relief program. Specifically, the GOP offering proposes the following:

$160 billion in direct pandemic response;

$132 billion in additional unemployment insurance;

$20 billion to fund childcare and a development block grant;

$20 billion to fund a “get back to school” initiative;

$50 billion to small businesses including another itineration of the Paycheck Protection Program;

$220 billion in direct payments to households;

$12 billion for nutritional support programs; and

$4 billion for behavioral support services.

The total GOP package is roughly one-third of the $1.9 trillion proposals favored by most Democrats. Mr Biden has been reportedly receiving pushback from the more progressive wing of his party regarding his willingness to sit down and listen to the GOP proposals. Progressive Democrats prefer that the Senate GOP negotiate directly with Senate Democrats versus conducting an end-around with the President.

The dollar likely climbs with growth in gross domestic product and positive growth in its commodities and equities markets. Infrastructure spends would also attract capital to the United States thus driving up demand for the dollar resulting in its appreciation. The GOP’s proposal does not, in my opinion, stimulate growth that can be expressed in currencies. The “stimulus” is more of a pandemic band-aid designed to keep the United States together until an economy that is more familiar comes along.

At best, traders should view the GOP’s strategy for stimulus as non-dynamic due to a lack of emphasis on non-capital driven items. Mr Biden’s American Rescue Plan does not appear to do more than be a bigger band-aid for households versus actual stimulation of economic growth.

Mr Biden’s American Rescue Plan touts a total of $1.9 trillion in funding. The Plan also focuses on extended unemployment insurance, direct pandemic payments to households, higher minimum wage, increased food aid, and expanded child tax credit, and continued foreclosure and eviction moratoriums. No emphasis on infrastructure or the other classic big ticket, shovel ready items that attracts capital expenditures.

Short of a significant lift on restrictions that limit travel and gatherings that would lead to reigniting economic activity, I don’t see much in either the GOP or Mr Biden’s plans that will bring back better.

The interbank market news scan …

President Joe Biden and Democratic congressional leaders must decide whether to break the administration’s $1.9 trillion Covid-19 relief proposal into pieces after a scaled-down Republican plan emerged. Republican Stimulus Offer Challenges Biden to Split Aid Bill (msn.com)

The group of 10 Republican senators seeking to negotiate with President Biden on a new round of COVID-19 relief unveiled details of their proposal on Monday, hours before the lawmakers are set to meet with the president at the White House. GOP senators detail $618 billion COVID relief counteroffer (msn.com)

GOP proposed sixth Covid-19 relief package. Proposed Sixth Covid Relief Package.pdf (senate.gov)

As President Joe Biden prepares to meet with Republican senators on Monday to discuss his proposed $1.9 trillion COVID-19 relief bill, progressives have urged the commander-in-chief to move ahead with his stimulus plan regardless of whether the GOP supports it. Progressives Dismiss Joe Biden’s Bipartisan Effort on COVID Relief, Demand Action Now (msn.com)

Ghana’s central bank on Monday kept its main interest rate unchanged at 14.5%, Governor Ernest Addison said in a statement. Ghana central bank holds key rate at 14.5% | Nasdaq

The Australian and New Zealand dollars were little changed on Monday ahead of a central bank meeting as cautious currency traders watched on while a wave of runaway retail investors unsettled equity markets. Australian dollar trades fractionally higher head of central bank meeting | Reuters

Cryptocurrency XRP tumbled into the red on Monday, after rising more than 50% in early trading, as a “pump and hold” scheme organized by day traders ran into trouble.https://www.consumersadvocate.org/widgets/text_list?pcuid=cf4d004eb5b1

Yet “meme” currency Dogecoin held on gains of around 34% as amateur investors zeroed in on new assets in the wake of the GameStop saga and Elon Musk boosted interest in cryptocurrencies. XRP falls sharply after soaring 50% but Dogecoin is holding on, with day traders looking for new targets and Elon Musk fanning interest (msn.com)

The head of Hong Kong Monetary Authority has rejected lawmakers’ call to dip into the HK$4.5 trillion (US$581 billion) Exchange Fund to finance the government’s rescue packages for companies and individuals hard hit by the Covid-19 pandemic, saying such a move would hurt the fund’s ability to defend the local currency. Hong Kong wants to keep its US$581 billion war chest for defending the currency instead of the economy, monetary chief says | South China Morning Post (scmp.com)