Biden’s Fed Gamble

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Welcome back to Dry Powder.

Happy Wednesday. And thanks as always for supporting our work here at Puck. Today, my thoughts on Joe Biden’s meeting with Fed chairman Jay Powell—and why, in reality, their non-interference pact only runs one way.

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Biden’s Fed Gamble

Biden has wholeheartedly endorsed Fed chairman Jerome Powell’s painful decision to take the punchbowl—ZIRP, Q.E., etc—away after 14 years. Does the political calculus suggest a short-term recession and midterm bloodbath followed by a rebound in ‘24?

WILLIAM D. COHAN

Of all the headaches that Joe Biden has faced during his two years in office—the pandemic, obviously; the collapse of his signature multi-trillion (and then trillion-plus) infrastructure package, Afghanistan, the war in Ukraine—the president has seemed particularly miffed about a recent domestic culprit: inflation. Insidiously rising prices, after all, are the sort of things voters feel in their wallets and their guts, especially when they become memorialized via gas prices during the summer vacation season. According to a recent Washington Post report, Biden has for a while been rousing his administration to do more to combat inflation, publicly and privately. During an Oval Office meeting with Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell, Biden declared that addressing inflation remained his top priority. It was a powerful public statement amid a moment when more aid was being shipped to Ukraine, and the pandemic was surging once again.

But in an equally prominent opinion piece in The Journal, Biden also tried to straddle his position. He may be laser focused on curbing inflation, but he isn’t going to meddle with the Fed’s monetary policy. “My predecessor demeaned the Fed,”Biden wrote in the May 30 opinion column, “and past presidents have sought to influence its decisions inappropriately during periods of elevated inflation. I won’t do this.”

I presume that Biden thinks he’s being respectful by taking a hands-off approach to the Fed and by letting Powell try to tame on his own, with his Fed brethren, what seems like runaway inflation. But it’s the policies of the Fed since the 2008 financial crisis that have gotten us into our current economic fix, and I’m not convinced that the fox, now that he’s made his way into the hen house and ravaged it, should be free to continue to roam about without an escort...

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