Is the Fed's Leading Dove Aiming to Replace Jay Powell?
Perhaps Neel Kashkari is angling for the Fed Chair job, should Donald Trump attempt an Eccles palace coup and oust Jerome Powell for his tightening ways. General Mattis may be sending troops to the border to head off the “caravan” enroute from Guatemala (or was it the middle east?), but he can certainly redirect them to Federal Reserve HQ to suppress President Trump’s “biggest risk.”
Mr. Kashkari, the president of the Minneapolis Federal Reserve Bank, has hopscotched through various positions after being hired by then Secretary of the Treasury Henry Paulson. He’s worked at PIMCO, he’s run for governor of California, and he administered the much beloved TARP program during the financial crisis.
Today his op-ed appears in the Wall Street Journal urging the Fed’s home office to lighten up on the interest rate hikes already. The President must be pleased. The 2 percent inflation target, which tall-Paul Volker writes in his new book, “I puzzle at the rationale. A 2 percent target, or limit, was not in my textbook years ago. I know of no theoretical justification,” is, according to Kashkari, “symmetric” not a “ceiling.”
The Minnesota Fed man writes, “In 2015 the FOMC estimated unemployment could not go below 5.1% without triggering inflation. Its current estimate is 4.5%; the actual unemployment rate is down to 3.7%, and wage growth and inflation are still muted.”
Inflation is muted, except if you calculate it the way it used to be calculated. John Williams does that for us at shadowstats.com and he says CPI is 6 percent using the 1990 method or 10 percent using the 1980 approach.
Courtesy of ShadowStats.com
“Every time we do something great, he raises the interest rates,” Mr. Trump told reporters from the Wall Street Journal, adding that Mr. Powell “almost looks like he’s happy raising interest rates.”
During his meeting with the WSJ reporters, Trump, “pushed a red button on his desk, summoning an iced cola delivered to him on a silver platter.”
I can imagine Idi Amin did that.
He also talked like Amin or other dictator. The reporting crew from the WSJ write,
He referred to economic gains during his time in office as “my numbers,” saying, “I have a hot economy going.” He described his push for growth as a competition with former President Obama’s record, saying that increases under his Democratic predecessor were skewed because of low-interest rates.
Mr. Kashkari, himself, questions the government’s numbers to make the case to stop the interest rate music from being turned up too loud.
And the formal unemployment rate only counts people actively looking for work. By another measure—the percentage of prime-age Americans who are employed—nearly a million adults are still missing from the job market relative to 2006, and more than 2.5 million fewer are working relative to 1999. How many more of those missing workers would re-enter the labor force if wages picked up? We don’t know.
All of that is true, but typically not uttered by government employees of any sort of rank. Evidently, it doesn’t matter what you write from the distant Minneapolis Fed outpost.
And, how about this from Kashkari,
Critics argue the tax cut is delivering a Keynesian sugar high, that modest growth rates will return once the high has worn off, and that taxpayers will be left holding $1.8 trillion in additional outstanding debt. Who’s right? It will take time to find out.
“Keynesian sugar high? Did he really take the Lord Keynes’ name in vain?
The former TARPmaster closes with,
But until inflation or inflation expectations get meaningfully higher, the Fed should allow the economy to continue to strengthen, so as to allow as many Americans as possible to participate in the recovery.
That sentence, even grammatically, sounds Trumpian.
Trump feels as if Powell lied to him. “He was supposed to be a low-interest-rate guy. It’s turned out that he’s not.”
Of course, it’s all about Trump v. Obama. Michael C. Bender, Rebecca Ballhaus, Peter Nicholas and Alex Leary write,
Mr. Trump demurred when asked under what circumstances he’d remove Mr. Powell, whom he selected for a four-year term that started in February. “I don’t know,” he said. “I’m just saying this: I’m very unhappy with the Fed because Obama had zero interest rates.”
Wah, wah, wah. Mr. Kashkari, your next office may be in the Eccles Building.