Jerome H. Powell is facing a wave of criticism about his leadership of the Federal Reserve as he attempts to steer the central bank, and the U.S. economy, through a perilous moment.
Economists and market players — including some former Fed officials — say he’s been an ineffective communicator and failed to develop a larger strategy for monetary policy.
His approach, critics say, has left investors and business leaders confused about the central bank’s path forward at a moment when uncertainty from the trade war and a global slowdown is already clouding their outlook. And Powell has little room for error, considering the unprecedented assault on his performance he is absorbing from President Trump.
“He has struggled to formulate very basic things central bankers should be able to answer, and he hasn’t shown a clear analytical framework,” Eric Winograd, senior economist at AllianceBernstein and a former staffer at the Federal Reserve Bank of New York, told my colleague Heather Long for a piece we wrote on Powell’s on-the-job evolution.
Powell is attempting to prove he’s learned during his 20 months on the job and will be a steadying hand by showing more of his prep work during post-Fed meeting news conferences. That’s meant pivoting from a loose, conversational style during those appearances to a more deliberate if less engaging one.
A top economist at a major Wall Street bank put it to me this way: “When Powell first started, everybody said his style was so refreshing, because he's so plain spoken. It got me to thinking: Maybe there's a reason why central bankers aren't so plain spoken… [At his Sept. 18 news conference] I thought he was more central banker-like, with a more judicious choice of words. I like him as a person and sympathize with the situation he’s in. But there’s room for improvement, and I’m not the only one who thinks that.”
Now, like Janet Yellen before him, he’s reading more of his answers directly from a binder of likely questions and canned answers he brings with him. From our story: “In early 2019, Powell started putting several dozen colored tabs into the binder he personally assembles for news conferences so he can quickly flip to answers on about any topic. Since the spring, he has brought this enhanced binder along and looked down more often.”
Powell got generally positive marks for hewing to that approach in his most recent news conference. Those reviews marked a major improvement over his July 31 appearance, during which he confounded Wall Street traders by referring to the Fed’s first interest rate cut since the recession as a “mid-cycle adjustment.”
“Mid-cycle adjustment — what does that mean? I have no idea,” Charles Plosser, president of the Philadelphia Fed from 2006 to 2015, told Heather. “I was on the inside at the Fed for almost 10 years and even I find it confusing.”
Sarah Bloom Raskin, a former Fed governor and deputy secretary of the Treasury, summed up the case in defense of Powell as a figure in an exceedingly difficult position: “Every Fed Chair thinks he or she will hold the gold medal for superb communication. But here’s the reality: It is downright difficult to be perfect, especially in the age of regular press conferences,” she wrote in an email. “Monetary policy concepts are not particularly accessible, and sometimes market players don’t like what the Fed is deciding. As for Jay Powell, he has an additional and monumental challenge given the constant drumbeat of harassment coming from Mr. Trump, attempting to undermine him and pump up others. Chairman Powell is doing a fine job keeping the Fed from becoming a show to audition for and rate.”
Powell isn’t the only top Fed official weathering criticism. New York Fed President John Williams is facing a trial of his own, as financiers question his handling of recent kinks in the repo market. They forced the bank to pump tens of billions of dollars into the system to keep it liquid — and prevent effective interest rates from creeping up.
“The situation is the biggest test so far for Mr. Williams — who took the helm of the New York Fed in June 2018 — and one that many market analysts say deserves a less-than-stellar grade,” the New York Times’s Jeanna Smialek writes. “While officials have succeeded in getting interest rates under control, some investors have criticized the Fed for moving too hesitantly when problems first arose, waiting until rates on repurchase, or repo, agreements had skyrocketed and briefly spilled over, pushing the Fed’s benchmark rate above its intended range.”
The repo market turbulence follows a staff shakeup Williams ordered — ousting Simon Potter and Richard Dzina, two top officials at the bank — “because of differences in management style,” Smialek writes. “Their dismissal unsettled some bank employees and raised eyebrows on Wall Street.”
Powell isn’t responsible for the static at the New York Fed, but some market watchers say the headlines have added to the sense that central bankers in his era are letting events slip out of control.
“People gave [Ben] Bernanke and Yellen the benefit of the doubt,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings. “I don’t think people give Powell the benefit of the doubt.”
— Stocks climb to wrap a bumpy quarter. AP's Stan Choe and Damian Troise: "U.S. stocks climbed on Monday and gave one last nudge to ensure the S&P 500 emerged from yet another tumultuous quarter with a modest gain. As has been the case throughout the quarter, movements in [Trump’s] trade war with China helped drive the market on Monday.
"Investors found encouragement after China said that its top trade negotiator will lead talks with the United States that are expected to take place next week. The Trump administration also calmed some worries that it may limit U.S. investment in Chinese companies... The S&P 500 climbed 14.95 points, or 0.5%, to 2,976.74."
— Fed study: Robots are hurting worker wages. Bloomberg's Simon Kennedy: "Automation has 'contributed substantially' to reducing the portion of national income that goes to U.S. workers over the past two decades, according to a new study by economists at the Federal Reserve Bank of San Francisco. Despite the lowest unemployment rate in around 50 years, the so-called labor share has fallen to about 56% from 63% in 2000 and the increased use of robots and other technology has been an important driving factor, the economists Sylvain Leduc and Zheng Liu wrote in the report published on Monday...
"The upshot is that workers become more reluctant to ask for significant pay hikes out of fear that their employer will turn to automation to replace them, the economists said. That potentially explains why wage growth has been relatively weak despite the tightening labor market."
McConnell wants trade war to end soon: Senate Majority Leader Mitch McConnell told CNBC "that the China trade war has been 'very tough' on farmers in the United States," CNBC's Kevin Stankiewicz reports.
The majority leader was touting the USMCA: McConnell made the appearance on the heels of a Wall Street Journal op-ed he co-wrote with House Majority Leader Kevin McCarthy pushing Speaker Nancy Pelosi and House Democrats to pass Trump's NAFTA 2.0 deal. The Kentucky Republican said the trade deal "ought to be at the top of the list" for the House and that failing to pass it would leave Pelosi heading into 2020 "having it credibly said that all you did for the whole Congress was harass the president and tried to have him removed from office.”
- More on the trade war with China: "The Chinese have been stealing our intellectual property and not playing by the rules for a long time," he said. "I admire what he is trying to do, but I hope we can get a conclusion to this soon because rural America really needs it, and rural America also needs the USMCA."
- On the balance of doing business with companies like Huawei: "We don’t want actually – obviously, to make it more difficult for American companies to do business in China and for Chinese companies to do business here," he said. "But these national security implications are important. Huawei was right in the cross-hairs of what we’re talking about here, that’s a good example."
— China warns of market instability if companies are delisted: China warned “of instability in international markets from any ‘decoupling,’ of China and the United States, after sources said the Trump administration was considering delisting Chinese companies from U.S. stock exchanges,” Michael Martina of Reuters reports.
“The move would be part of a broader effort to limit U.S. investment in Chinese companies, two sources briefed on the matter told Reuters last week, in what would be a radical escalation of U.S.-China trade tensions. … White House trade adviser Peter Navarro … dismissed the reports as ‘fake news.’ ”
Meanwhile, PayPal is set to enter the Chinese market: “U.S. digital money transfer platform PayPal Holdings Inc. has obtained Beijing’s approval to buy a controlling stake in a domestic payments firm, which would make PayPal the first foreign firm to enter China’s payment services market,” Meg Shen of Reuters reports.
“Gopay Information Technology, PayPal’s acquisition target, has received approval from China’s central bank to sell a 70% stake to PayPal, both companies said.”
And Beijing is fighting to keep private companies afloat: “China is snapping up stakes in private companies at a record rate, as the trade war, economic slowdown and credit squeeze heap pressure on entrepreneurs,” the Wall Street Journal’s Shen Hong reports.
“The investments mark a reversal after decades in which state-owned enterprises have shrunk in importance, as reflected in measures such as their share of the workforce or asset ownership. Since China’s public-sector companies are typically less efficient or innovative than their private rivals, the shopping spree could lead to a fresh drag on growth.”
— S&P Global: Trade war could hit U.S. growth. The firm is forecasting domestic growth wil slide to 2.3 percent this year, a downward revision of its previous call of 2.5 percent, and 1.7 percent next year, down from1.8 percent, as a result of drags from the trade war. "Consumer spending and the U.S. labor and housing market are strong," said Beth Ann Bovino, S&P's chief U.S. economist. "But the trade war, coupled with waning fiscal stimulus and slowing global growth, suggest that the domestic signs of strength may not be enough."
— WeWork withdraws IPO: “Co-working company WeWork said it will ask to withdraw its initial public offering filing with the Securities and Exchange Commission, postponing its attempts to go public indefinitely,” my colleague Marie C. Baca reports.
“The announcement is the latest in a string of bad news for the embattled We Co., following the departure of chief executive Adam Neumann last week after a Wall Street Journal report on his problematic behavior. WeWork earlier this year was valued as high as $47 billion, but in recent weeks the company considered an offering that would slash its value to as low as $10 billion, according to Reuters. The company had already delayed its IPO.”
— Top Credit Suisse exec resigns after spying scandal. FT's Sam Jones, David Crow, and Daniel Shane: "The chief operating officer of Credit Suisse resigned on Tuesday following a corporate espionage scandal, as it emerged that a security consultant involved in the surveillance effort had committed suicide. The suicide of the security consultant, who acted as a middle man between Credit Suisse and a private investigation firm, puts further pressure on the Zurich-based lender as it battles its worst reputational scandal in years.
"Pierre-Olivier Bouée, Credit Suisse’s COO, submitted his resignation after the bank’s board heard details of a surveillance operation he ordered against Credit Suisse’s outgoing head of wealth management, Iqbal Khan. The bank’s head of security, Remo Boccali, has also resigned."
— Why Forever 21’s bankruptcy could ripple: “Forever 21′s filing comes amid a wave of announced store closures in the U.S., many of them in shopping malls, which are set to eclipse a record this year,” CNBC’s Lauren Thomas reports.
“So far in 2019, major retailers announced plans to shutter 8,558 stores in the U.S., while opening 3,446, according to a tracking by Coresight Research. Last year, there were 5,844 closures and 3,258 openings, Coresight said. The firm is anticipating announced closures could top 12,000 this year, marking a new high.”
— Collins resigns before changing plea in insider-trading case: “Rep. Chris Collins is resigning from Congress and expected to plead guilty to insider-trading charges [today], following allegations last year that the Republican from New York schemed with his son to avoid significant losses on a biotechnology investment,” my colleagues Renae Merle and Mike DeBonis report.
“Collins, [President Trump’s] first congressional supporter, allegedly tipped off his son to confidential information about an Australian biotechnology company, Innate Immunotherapeutics, that he learned as a member of its board. Collins and several others used the information to avoid more than $700,000 in losses, according to prosecutors.”
— Sanders pitches tax on highly-paid CEOs of major companies. The Post's Jeff Stein: "Sen. Bernie Sanders (I-Vt.) unveiled a plan on Monday that would dramatically increase taxes on corporations that pay their CEOs far more than their workers, adding to the growing suite of policy proposals to expand taxes in the Democratic presidential race.
"Under Sanders’s plan, the government would increase a firm’s corporate tax rate if its highest-paid employee earns more than 50 times what its average worker does — an attempt to encourage companies to distribute their profits more equitably. The plan would apply only to companies with more than $100 million in annual revenue."
Via Bloomberg's Michael P. Regan:
- St. Louis Fed President James Bullard, Fed governor Michelle Bowman and FDIC chairman Jelena Williams speak at a conference on community banking in St. Louis.
- McCormick is among the notable companies reporting their earnings, per Kiplinger.
- Philadelphia Fed President Patrick Harker speaks at the conference on Wednesday.
- Bed Bath & Beyond, Lennar and Paychex are among the notable companies reporting their earnings on Wednesday, per Kiplinger.
- PepsiCo and Costco are among the notable companies reporting their earnings on Thursday, per Kiplinger.
- Fed Vice Chair Richard Clarida speaks at a WSJ event about the future of global markets on Thursday.
- The Brookings Institution holds an event on why inflation hasn’t behaved as predicted, featuring remarks from former Fed chair Janet Yellen on Thursday.
- Powell speaks at a Fed event focused on maximum employment and price stability on Friday.
From The Post's Tom Toles: