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Jerome Powell 2.0

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President Joe Biden has tapped Jerome Powell to serve a second term as chairman of the Federal Reserve.

Biden said Powell’s “steady leadership” helped calm markets as governments shut down the economy due to coronavirus, and he expressed confidence in Powell’s future leadership. “I believe Jay is the right person to see us through,” Biden said.

Over the last several days, there was speculation that Lael Brainard might get the nod. She is perceived as even more dovish than Powell, and she’s a Democrat. She will serve as vice-chair.

Both Powell and Brainard must be confirmed by the Senate.

Democrats were pushing hard for Brainard. Biden defended his decision saying Powell’s “independence” is a plus adding that he felt there was a need for stability at the Fed.

At this moment of both enormous potential and enormous uncertainty for our economy, we need stability and independence at the Federal Reserve.”

In a tweet, Peter Schiff questioned Biden’s desire for “independence” at the Fed.

If Powell actually exercises the political independence POTUS just praised, raises interest rates and stops monetizing exploding federal deficits to fight inflation, despite recession and rising unemployment, I wonder how long it will take before Biden threatens to fire him?”

Gold sold off sharply on the announcement and the dollar rallied. This was due to expectations that a second Powell term will mean tighter monetary policy to fight inflation.

But Powell’s nomination is really nothing more than a continuation of the status quo.

And what is the status quo?

Loose monetary policy, quantitative easing, zero percent interest rates, and money printing. Brainard might have directed a looser monetary policy, but that doesn’t make Powell a hawk.

Schiff tweeted that the good news is Powell was renominated. And the bad news is Powell was renominated.

Yes staying with Powell represents stability and maintains continuity. But continuing a failed policy is nothing to celebrate. What’s needed is radical change. Maybe we get it after the next crisis.”

Oddly, the mainstream narrative flipped 180 degrees with the announcement of Powell’s second term. All of a sudden, sticking with the status quo will yield a different result. After the sizzling CPI data came out earlier this month, traders bought gold. They recognized that Powell was powerless to fight the inflation dragon. Now, all of a sudden, Powell’s reappointment means a war on inflation? A war he will win? It doesn’t make sense.

The fact is, reappointing Powell doesn’t change the economic dynamics. The Fed remains caught between a rock and a hard place. It clearly has an inflation problem. Despite the announcement of a QE taper, the central bank still hasn’t done anything significant to address rising prices. As Schiff put it after the Fed announced the taper, they’re still spiking the punch bowl.

They’re still pouring alcohol into that bowl. The Fed is just saying they’re going to reduce the amount of alcohol they pour into the bowl on a monthly basis. But they’re not going to stop pouring it in. That’s why I’ve said repeatedly that tapering is not really tightening. They’re still easing. They are still printing money, monetizing government debt. They’re just saying they’re going to monetize a little less government debt in the coming months then they have been monetizing in the prior months.”

That’s because any real effort to fight inflation will pop the bubble economy. The entire “recovery” is predicated on low interest rates and quantitative easing. Schiff said he found it amazing that people think the Fed can legitimately fight inflation simply by tapering its current asset purchase program.

It’s also crazy that they think small rate hikes in mid-2022 will make a difference given how fast the CPI is rising now and how much faster it will be rising then.”

Brainard said she was looking forward to working with Powell to “build a durable US recovery.” Schiff said she unwittingly swerved into the problem.

The Fed can’t build anything other than asset bubbles and big government. Biden’s nominees assure a continuity of failure and inflation!”

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About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
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