At 2:30 pm this afternoon, Jerome Powell will hold a press conference. It's all part of the regular meeting of the Federal Open Market Committee.
The FOMC meets 8 times a year, and this along with Powell's twin testimonies before Congress, are the Fed Chairman's principal way's to address the American people.
So, why, I wonder, did the Biden Administration choose this week, of all weeks, to roll out their proposed new tax hike?
This really puts the Fed Chairman on the spot.
You see, by his own words, and by the action of the Financial Markets, Powell is currently the most dovish Fed Chairman we've seen in a long long time.
He has already stated, that he will hold interest rates at all-time lows for the foreseeable future. He will also continue the Fed's program of Quantitative Easing. That's the purchase of all financial assets that meet the Fed's standards. Primarily Government, and now some Corporate Debt.
The new stimulus package, on the part of the Biden Administration, was just part of this very accommodative policy by both Fed and Treasury.
But now President Biden is signaling that he wants to completely reverse that policy. And interestingly he has done it even before we've had a chance to cash our stimulus checks.
The President is going from strictly accommodative to a restrictive fiscal policy. It's the sharpest, most dramatic change in direction that we've ever seen.
And it leaves Chairman Powell in a very tough position today. Powell doesn't want to oppose this new tax hike. To do so on the newly installed President would be the worst of poor form.
However, there is no way that Powell can endorse a tax hike, especially right now. By all measures, this is not a healthy economy. The overall economy peaked, in terms of GDP, back in 2019, and by many estimates on Wall Street who project that we will not exceed that level for another year or two. That would mean that this downturn may be one of the longest in the post-World War II period.
This is reflected in the unemployment numbers. People are still begin laid off. Each week we are seeing nearly ¾ million people applying for unemployment insurance. That's a rate that is double the unemployment rates we saw before the Pandemic.
And finally, just yesterday, the President himself estimated that 400,000 small businesses are no longer operating. A staggering blow to the local, main street economies.
Chairman Powell knows all this. And what's more so does Wall Street.
Today if Powell even hints at an endorsement on new taxes, the Street is liable to not take kindly to that. The financial markets are on razor’s edge, powered primarily on the continued goodwill coming from Washington. Take that away and it’s liable to have a dreadful effect.
Finally perhaps most inexplicable of all, in this rush to raise taxes, has been the silence of the new Secretary of the Treasury, Janet Yellen. Herself a recent Chair of the Federal Reserve, Ms. Yellen above all must realize that the Administration has just put Powell in a most untenable position.
I wonder why they couldn't wait to float this new tax hike balloon? Would another week have made a difference? That would have given the Fed some time to react to the new proposal.
You know it's been a long time since we've seen an Administration and the Fed singing from different sheets of music. You have to go all the way back to the Reagan Bush years of the 1980s and early '90s since you've seen Treasury headed in one direction and the Fed in another.
Really since the Clinton years, both Fed and Treasury have acted in a coordinated manner. Both looking to reinforce the other. Clinton's campaign manager, James Carvel's famous dictum: “It's the economy stupid” became not just a campaign slogan, but also a way of doing business for the Fed and Treasury.
In over 30 years this is the first time we've seen that coordinated front broke. And broken in a very big way.
Today, I'm quite sure we'll see Fed Chairman Powell, once again promoting the easy money, pro-growth Strategy which the Fed has been in for a long time now.
While over on Pennsylvania Avenue an entirely new approach is being rolled out. One that seeks restraint. To begin to pay, at least in part, for all that stimulus now.
It is, apparently, the due bill on this government spending.
And you have to wonder about the timing.