by Gary Alexander
December 28, 2022
Congress often likes to sneak through unpopular legislation on Christmas Eve as they head home for recess and the nation is focused on family gatherings. It happened again last week, when Congress sent a pork-laden $1.7 trillion 4,155-page “Omnibus” spending bill to President Biden for his signature just 10 days before Republicans would gain control of the House. Something similar happened in 1913.
On December 22, 1913, the Federal Reserve Act of 1913 passed the House (298-60) and the next day the Senate passed it 43-25, and President Wilson signed it with a golden pen, legend says on December 23.
America survived for 125 years without a central bank, and the dollar maintained its stability except for the 4-year Civil War period, but since 1913 the dollar has lost 98% of its value to gold and the Fed soon fueled a 12-year Depression. 1929-41. They failed their first major test, but how have they done lately?
In the stagflationary 1970s, the Fed Chair was Professor Arthur Burns, who mostly took dictation from the White House, first from President Nixon, then Ford and Carter, but Congress reined in the Fed 45 years ago with a similar-sounding Federal Reserve Reform Act of 1977, in which Congress explicitly stated that the Fed’s goals should be “maximum employment, stable prices, and moderate long-term interest rates.” Somehow, those three goals were dubbed the Fed’s “dual mandate,” since interest rates were linked to inflation as one mandate, with the Fed being charged with “job creation” as the other.
In 2020, radicals assigned the Fed a third (or fourth?) extraneous mandate, to cool down the planet. On December 15, 2020, the Fed added climate change to their job description with this press release.
“The Federal Reserve Board announced on Tuesday that it has formally joined the Network of Central Banks and Supervisors for Greening the Financial System, or NGFS, as a member….
“’As we develop our understanding of how best to assess the impact of climate change on the financial system, we look forward to continuing and deepening our discussions with our NGFS colleagues from around the world,’ said Federal Reserve Board Chair Jerome H. Powell.”
Putting aside the solving of climate change through monetary policy (please explain!), let us see how the Powell Fed is performing in the other two major mandates. Even though it is impossible to see how the Federal Reserve has any role or tools to make people work who don’t want to work, the Labor Force Participation Rate has declined substantially in the last 20, 10, and five years, especially post-COVID.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
For many years, I have questioned how the federal government can count jobs so accurately on the first Friday of each month. How can a government which doesn’t know how to send checks to people out of work (vs. those still working) during a pandemic know how many lost or gained jobs in the last month?
And what is “work” anymore, when you work online 20 hours in each of two jobs in a “gig” economy?
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Sure enough, we found out last week that the Biden administration restated the new job totals in the second quarter. The Bureau of Labor Statistics claimed that 1,047,000 net new jobs were created when the total was only 1% of that, or 10,500, according to a report issued by the Philadelphia Fed. Amazingly, this revision came out about one month after an election impacted by this rosy jobs data.
The Philadelphia Fed gleaned its data from unemployment insurance payments, saying that its estimates: “incorporate more comprehensive, accurate job estimates released by the BLS as part of its Quarterly Census of Employment and Wages (QCEW) program to augment the sample data from the BLS’s” reports that are “issued monthly on a timely basis.”
In a perverse sort of way, the Fed passed this test by “fact-checking” the BLS, but they should never have been tasked with creating jobs or keeping unemployment rates down in a world where Congress keeps rewarding millions of Americans for not working via a package of benefits and incentives for joblessness.
Inflation is “Necessary” then “Transitory” and “All Good” (Until It’s Terrible)
It’s hard to believe now, but before COVID struck America, in February of 2020, Fed Chair Jerome Powell said: “It’s not going to be easy to have inflation move up.” He told Congress, “Even with the very high level of accommodation that we’re providing… It will take time.” Back then, the Fed’s greatest concern was that inflation would stay too low, too long, below the Fed’s 2% target, courting “deflation.”
Then came COVID, after which the Fed released trillions of dollars into the economy, while the U.S. Treasury released more trillions to fund spending plans and stimulus checks in unprecedented amounts.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The first wave of monetary stimulus in the second quarter of 2020 was necessary, in my view, since we forcibly froze the economy, putting millions out of work. In the spirit of the Constitution and justice, we owed these workers and business owners some compensation for their forced losses beyond their control.
However, nearly all of the massive monetary creation and stimulus packages since mid-2020 have been politically motivated, untargeted, and excessive, in my view, causing a huge and powerful new round of inflation in every-day prices as well as most asset classes – stocks, real estate, energy, bitcoin – you name it. Checks were sent to over 80% of Americans rather than the truly needy; generous unemployment was added for 18+ months, even though jobs were going begging; renters were given a free pass on rent, even if they could afford it; and even the IRS postponed deadlines and required distributions – for everyone?!
All through 2021, with soaring inflation, the Federal Reserve officers were saying it was no problem. In other words, “We didn’t create this new round of inflation – but if we did, it’s really a good thing.”
Fed Chair Jerome Powell finally retired the adjective “transitory” for inflation on November 30, 2021, but just before the Fed Chair threw in the towel on the “T” word, major political voices were still using it:
“All of the economists that the President has been relying on suggest there is a transitory nature to the inflation problem.”
–Jennifer Granholm, U.S. Secretary of Energy, November 27, 2021
“This inflation that we’re experiencing is transitory. It is not going to be here for long.”
–Representative Maxine Waters (D-Cal), November 28, 2021
The Amen Chorus in the press lined up behind Chairman Powell. Andrew Ross Sorkin, wrote in the New York Times in July 2021 that we should be grateful to have inflation – it is a “salve” on our economic wounds, and Nobel Prize winner Paul Krugman said the same thing – that inflation doesn’t really hurt the poor. As usual, he speaks in theory, not reality. In reality, food and energy costs hurt the poor more.
We begged to differ here. In my April 13, 2021, Growth Mail: “Inflation Will Roar Again–And Probably Soon,” I was astounded that the San Francisco Fed President was so blasé about inflation in Barron’s:
“In a Barron’s interview (“A Central Banker on a Mission,” April 12, 2021), San Francisco Fed President Mary Daly, a voting member of the FOMC, said “We have struggled for a whole decade…to get inflation up to our 2% goal.” Then she promises, “We always have the tools to pull inflation down if it gets too high.”
“File that promise away for future review – or review Paul Volcker’s experience in 1979-82 to see how he struggled to rein-in double-digit inflation: We had to suffer double-dip recessions that felt like a Depression.”
Fed Chair Powell finally saw the light in late 2021, but he didn’t start raising rates or cutting money supply until the Spring of 2022, and then by giant steps. Is this any way to run a central bank?
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Bring back Ben Bernanke, or anyone who shoots straight. Better yet, neuter the Fed by changing its “dual mandate” to (1) supervising the nation’s banks and (2) maintaining the purchasing power of the dollar.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
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Powell’s Fed Has Flunked its “Dual Mandate” of Inflation Control and Job Creation
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The Yen Rally is Likely Over
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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