February 25, 2021
Much has been said about Dr. Anthony Fauci and his attempts to “control the universe” through his various strict pandemic recommendations…
But what about Fed Chair Jerome Powell’s attempt to control the world through various market-moving attempts of his own?
This week, Americans got to look through a window into the mind of our Federal Reserve Chief during his semi-annual testimony before Congress.
Some investors were nervous… They feared Powell might be too optimistic on our economy (imagine that!) and therefore, could tighten interest rates too quickly.
C’mon, this is the Federal Reserve we’re talking about. And if there’s one thing Central Bankers like to do, it’s to play God with our economy.
Anthony Fauci Has Met His Match
Dr. Fauci and Powell… It’s an interesting comparison on many levels.
Fauci has an extraordinary amount of power in his position and is tunnel-visioned in his approach.
And Powell also has an immense amount of power, though I’d argue economists tend to take in more data points in an effort to best understand our economic reality.
Both men believe they can single-handedly influence outcomes… move the market with a single statement… and that it’s their responsibility to influence outcomes.
Fauci wants everyone under lock and key (seemingly forever, especially given his latest comments on how this virus is never really going away), while Powell wants to keep the economy humming and believes with intervention that he absolutely can do that.
The reality is… Both men are wrong.
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Neither one of them can keep us physically or financially safe. And the more they try, the more they run the risk of unintended consequences.
Case in point… There’s a political backlash against Fauci brewing that I’d argue causes people to act with less caution instead of more.
When he vacillates on whether we need (or don’t need) masks, for example, because apparently (he later told us) he was concerned about whether the country would have enough masks for health providers themselves… Yet now, he tells us TWO masks are the way to go.
Unfortunately, this can have the unintended effect of people becoming more frustrated with the system and not trusting government officials telling them what to do… perhaps then leading to masses not bothering with masks at all.
As for Powell, at what point do we no longer trust our markets? At what point do investors say this run-up in asset prices is divorced from economic reality? At what point does the bubble burst?
These are very real risks we’re currently facing thanks to two men who, frankly, yield too much power.
In The Boxing Ring With Fauci and Powell
Another interesting insight into the Fauci-Powell dynamic stems from the reality that they’re ironically at odds with each other.
Consider Fauci’s comments from earlier this week…
There are things, even if you’re vaccinated, that you’re not going to be able to do in society. For example, indoor dining theaters, places where people congregate. That’s because of the safety of society.
Let’s forget the insanity of never going out to dinner again for just a moment and just think about what these comments mean for poor Jerome Powell!
The Federal Reserve is trying to keep our economy alive after an unprecedented and challenging downturn. I’d argue that the Fed’s help (at this point anyway) is increasingly unnecessary and runs the risk of creating other problems by the way of asset bubbles which could easily pop in the months ahead…
Powell is up against a formidable opponent. Dr. Fauci is determined to keep everything shut down for the foreseeable future… maybe even forever… while Powell is trying to get things moving economically.
So, what’s a Central Banker to do when faced with a head of the CDC who seems determined to only view the world through his limited scientific lens, with little consideration to how it will otherwise affect human behavior – including economic behavior?
Be more accommodative, of course!
Fauci Made Me Do It…
Granted, Powell has a darn good excuse for low rates, despite rising signs of inflation. He can point to the constant threat of lockdowns and Fauci’s suggestion that no one should ever go to an indoor dining establishment again – even after vaccination – as a reason to push for lower rates and more money printing.
On Tuesday, as the markets were sweating his testimony, Powell sent a signal that provided a sigh of relief that could be heard almost instantaneously on Wall Street. He told the Senate Banking Committee, “the economy is a long way from our employment and inflation goals.”
Boom! It was magic to traders’ ears… Those were the words they wanted to hear, like an antidote to Fauci’s negative warnings. Almost immediately, markets (which had traded down earlier in the session) reversed course. The Nasdaq rallied back almost to the flat line, ending the day off just 0.5%, after having been down as much as 4%. The Dow and the S&P 500 Index closed in positive territory… And so everyone thought, “We get to live another day.”
The Federal Reserve seems content with the rising inflation creeping into our economy, as I wrote about last week. If you consider the recent jump in retail sales and even the Producer Price Index increase, you’ll start to see evidence of inflation creeping into our economy. It’s not clear yet whether this inflation will result in wage increases as well, but nonetheless it’s obvious our markets, and even alternative investments like bitcoin, are being affected by this record-low interest-rate policy.
Ultimately, I’d prefer that both Fauci and Powell back off… We are individuals who can, should, and must take responsibility for ourselves.
As a society, we should be open. We should let people who have gotten the vaccine to take their own chances going out to dinner on a Saturday night. And we should allow investors to accept their own set of risks. The Fed shouldn’t be there, arms extended, to constantly bail them out.
Otherwise, Fauci and Powell are creating a whole other set of unintended, and significant, consequences.
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Publisher, American Consequences
With Editorial Staff
February 25, 2021