COMMENT ON TODAY'S MARKET NEWS

As with my friendJosh Marshall, I will admit to not being knowledgeable about the workings of theFederal Reserve system. So I will cross-post his thoughts on the matter from today’s TPM.

Those paid subscribers who are more knowledgeable are invited to step in and enlighten our ignorance.

Annals of Fed Misses

By Josh Marshall

It’s not easy running the Fed. For years Jerome Powell got a lot of credit for navigating the U.S. economy with an unexpectedly loose monetary policy, through the COVID crisis and with a lot of “soft landing” credit during the Biden years. But through 2024 there’s been a backdraft of criticism that, having waited a bit too long to react to the inflation surge, he’s now holding the brakes too long, even after inflation has fallen pretty close to the central bank’s target rate. Last Friday’s jobs report was interpreted as providing key evidence that the Fed had in fact waited too long and that the U.S. economy now faced a real risk of recession. Today there’s a big market sell-off apparently kicked off by fears of slowing U.S. growth.

A couple quick thoughts on this.

First, let me state upfront that I am at best a slightly knowledgeable outsider to Fed-watching and monetary policy. And perhaps because of that I’m somewhere between amused and confused at how each new economic report over the last year seems to bolster or confirm a new economic narrative, sometimes totally at odds with just a month before. Through the summer we’ve had new economic reports, ones about growth, or jobs reports or whatever that tell us that the U.S. economy remains amazingly strong, in deep goldilocks balance. And then one anemic jobs report tells us we’re moving toward recession. I know it’s not that simple: analysts tell us that this report caps months of data which shows that while unemployment remains quite low by historical standards it’s been trending up for months and that, again historically, is usually a signal of major recession risk. Markets appear to agree with that read: at least with respect to recession risk if not the certainty of one. I’ll stick to my mostly outsider’s and ignorant status and say it still seems like we move from one narrative to another with high dependence on single reports.

Second, recession risk and a stock sell-off gets people’s attention. Given how spluttering and hapless the Trump campaign has been for the last two weeks, it’s hard to imagine they won’t put a big focus on this. Harris isn’t the incumbent but she’s part of the incumbent administration. So it’s on her. Whether or not that’s factually true, that’s how politics works. Politics isn’t fair. It’s another reminder that we’re on notice of a bumpy ride until Election Day with big surprises coming one after another.

My only thought on this is that Democrats going back at least to the 1990s have been very circumspect about the Fed, not wanting to give any sense that they’re applying political pressure on Fed policy. I hope Harris won’t take this tack. Powell seems to have overshot the mark even while lots of observers said he was overshooting it. Feds tend to be over-focused on inflation at the expense of growth and jobs, a tendency which Powell, a conservative Republican-appointed banker, seemed often to depart from. But we seemed to go back to that over the course of 2024. Harris should say so, or at least be very willing to say so depending on how events develop. Democrats get bound up in this very technocratic, propriety-based, “respect Fed independence” mindset that is politically enervating and foolish. Respecting Fed independence means not interfering in its function. It shouldn’t mean not expressing an opinion, especially during an election. Powell, albeit often a pleasant surprise for many Democrats, is after all Trump’s appointee. She should say so and she should be ready to say loud and clear that he missed the mark and now needs to do everything he can to repair any damage.

Why should she concede holding the bag for a Trump appointee? That makes no sense. The fact that she is in fact not the incumbent president gives her more ground to make that case. But it’s a principle Democrats should embrace generally. That’s the real and good meaning of populism. It shouldn’t be allowed to become merely a euphemism for white nationalism, which in recent years it largely has.

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