Powell's conflicting predicaments

Jerome Powell’s Big Problem Just Got Even More Complicated

The Fed aims to avert financial instability while also fighting inflation — predicaments that frequently call for opposite policies

By Nick Timiraos, The Wall Street Journal, June 12, 2023

Federal Reserve Chair Jerome Powell finds himself in a place no central banker wants to be: working to avert a credit crunch, which calls for looser monetary policy, while fighting high inflation, which demands the opposite.

Strains in the banking industry, which followed the collapse of three midsize lenders this spring, help explain why some central bank officials are leaning toward holding interest rates steady at their meeting this week—even though the economy and inflation haven’t slowed as much as they expected…

One risk is timing: if inflation becomes entrenched in public psychology, becoming self-perpetuating, that could force the Fed to hold short-term interest rates higher for longer… [end quote]

And the longer interest rates stay high, the more danger banks and zombie companies will be in.

The Fed created a “facility” to shore up banks after the crisis a few months ago. The banks held Treasuries which are safe so the Fed can lend using them as collateral. But corporate debt is a different story.

I think that Fed Chair Powell will do what he has reiterated: he will fight inflation regardless of economic pain.



I hope so because it is getting ridiculous. We all need a really good recession after all the ups and downs of the last 4 years.



I predict a hold, with language about how they’re “watching closely” or similar. It’s not just the bank instability, there are enough “green shoots” (to mix a metaphor) to make it reasonable to sit tight for a month. If, as is so often written, it take 12-14 months for a Fed policy to work its way into the economy, well, we’re coming up on that, so maybe a teensy bit of wait-and-see is in order, especially since the Fed doesn’t want to be blamed for a recession during the election season next Spring.


That’s what the Fed has prepared the market for. I agree that they will hold in June. The question is the rest of the year.



More layoffs than in just tech. But this really is not about labor. Meaning labor is in an excellent position. This is about assets.

The wealth effect in the stock market is inflationary. The boomers need to understand some of the boomers hold equity that causes a lot of the inflation. It wont be at some point this year as the market slides again.

Millennials picking up equity are holding it longer term. Boomers are spending down savings non stop to live. The irony here the FED creating higher rates. The boomers have fewer and fewer assets to avail of those rates. This is actually all good for the saving and earning Millennials.

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Can you link to the source of this information?


At first I was indignant that you asked. In my response I began to realize the value of the question. I thought the summation of mine was very obvious but even people with econ training do not see around corners at times.

Here are a few articles. At least one is behind a paywall. The topic on this board with this demographic deserves discussing. Remember the savings levels fully reflect supply side economic outcomes. The seniors get the lion’s share of all social spending and it may not be enough.


I don’t know about that McKinsey report. Adding a management consultant’s skim rate to your retirement withdrawal is the road to ruin.



Regardless of a possibly self serving conclusion there is good data in the report.

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