The Daily Signal - Jerome Powell’s Fed Fueled Inflation and Left Main Street Paying the Price | E.J. Antoni, Ph.D

Starting point is 00:00:00 Powell's reign at the Fed has been an unmitigated disaster. It's important for folks to know that the Fed, under Powell, created a novel monetary framework in 2020 that is proving very difficult to manage and maintain, is imposing significant cost to the American taxpayer while giving free money to banks on Wall Street and could even make it highly problematic for the Fed to conduct regular monetary policy again in the future. Again, Powell's failings could fill volumes, but at least he's gone in May. Let's look at his replacement.

Starting point is 00:00:33 It's the inflation hawk, Kevin Warsh. Hello, this is E.J. Antony for the Daily Signal. I'd like to talk today about the Federal Reserve, including the current chairman, Jerome Powell, and Trump's recently announced replacement for him, Kevin Warsh. Much of the drama around the Fed lately has been just that drama. I think that's unfortunate, though, because there are some serious issues here

Starting point is 00:01:08 that have had a significant and negative impact on the American people. As chairman, Powell helped cause the worst inflation in 40 years, gave us record high interest rates on credit cards, a frozen housing market, a regional banking crisis in the spring of 2023, and more economic ills that we don't have time to discuss in one of these videos. In short, though, Powell's reign at the Fed has been an unmitigated disaster. Without going too far into the weeds of monetary policy, it's important for folks to know, that the Fed under Powell created a novel monetary framework in 2020 that is proving very difficult to manage and maintain, is imposing significant cost to the American taxpayer while giving

Starting point is 00:01:53 free money to banks on Wall Street and could even make it highly problematic for the Fed to conduct regular monetary policy again in the future. Again, Powell's failings could fill volumes, but at least he's gone in May. Let's look at his replacement. It's the inflation hawk, Kevin Warsh. Just days before his nomination by Trump, Warsh's odds of being put forward for the chairmanship were relatively slim in the low 20s on prediction market websites. Other candidates who were seen as being much weaker on inflation, like BlackRock director Rick Ryder, had odds that were a multiple of Warsh's right until Trump's announcement.

Starting point is 00:02:36 So, who is Warsh? There's been a decent amount of attention paid to his. education, like the fact that he has an Ivy League degree. And while I understand why that's important to some people, that's not what I find truly impressive about him. Warsh is no newcomer to the Fed. He did a previous tour of duty as a member of the Board of Governors from 2006 to 2011, with the mortgage meltdown and global financial crisis smack in the middle of his tenure at the central bank. Now, that alone is not impressive. Plenty of failures have presided. over times of crisis. What makes Warsh stand out from those failures, however, is that history

Starting point is 00:03:17 has proved him to be prescient at those and subsequent moments of crises. After the big Wall Street banks were bailed out, Warsh correctly observed that the financial system was a wash with liquidity, and problems were brewing. In short, the Fed had created trillions of dollars and had interest rates at artificially low levels, a recipe for inflation and malinvestment, which ultimately would mean slower growth. Jumping to the end for a moment, Warsh was completely correct. The economic recovery coming out of the Great Recession was the worst since the 1930s. For those playing along at home, that was the Great Depression. Far from supercharging the recovery, the Fed's monetary malfeasance suffocated it and left

Starting point is 00:04:03 consumers with higher prices. but roll back the clock to before those negative consequences actually happened, and Warsh was warning about them. His recommendation at the time, and the correct course of action, was to allow rates to return to their natural level and stop running the printing press that was flooding the system with new dollars. Of course, he was ignored. The painfully slow economic recovery predictably followed, while the Keynesian apologists at the Fed scratched their nogins and Bill Wilderman that things weren't picking up despite the ongoing sprees of injecting liquidity into the financial system. Instead, all that quantitative easing, a euphemism for creating money

Starting point is 00:04:46 out of nothing, was just devaluing the dollar and siphoning away the worth of Americans' earnings and savings. Now, the horizontal drilling boom, fortunately, countered some of the inflation pressure created by the Fed. All that cheap energy coming online pushed down prices across the economy, but the Fed still did tremendous damage. Fast forward to today, and Walsh has been just as outspoken against Powell's Fed as he was against the previous regime over a decade ago. And for good reason, under Powell's chairmanship, the Fed has completely taken its eye off the ball and engaged in all kinds of mission creep. Instead of focusing on things within its purview, like price stability and the soundness of the financial system, the Fed has been trying to force

Starting point is 00:05:34 green energy mandates, diversity quotas, and other left-wing hobby horses, onto the financial sector. This was done to force anyone who deals with the financial sector, which is literally everyone and every business, into abiding by these ridiculous requirements. And after four years of unmitigated failures, Powell recently made a hostage-style video in which he accused Trump of politicizing the Fed. But the fact is that Powell himself has been politicizing the Fed and the broader financial system for years. Powell was the one who implemented an emergency rate cut right before the 2024 presidential election, and it was Powell who kept rates artificially low while he was awaiting a Senate vote on his renomination. In short, Warsh needs to

Starting point is 00:06:25 wash out the Fed. The entire organization requires a thorough cleaning from top to bottom. Some 300 Ph.D. economists there sit around and use disproven theories like the Phillips curve to make one failed prediction after another. They think economic growth and wage increases somehow need to be suppressed to keep a lid on inflation all while they turn a blind eye to the trillions of dollars in liquidity they've poured into financial markets. And then there's the fact that in this novel monetary framework Powell helped build, the Fed pays banks hundreds of millions of dollars in interest daily to not lend to the private sector. The whole institution needs to change. In recent speeches, Warsh has explained that the Fed is committing a series of serious policy errors today that are causing

Starting point is 00:07:16 private sector interest rates to be too high. He has pushed for lower interest rates paired with a reduction in the Fed's multi-trillion dollar balance sheet. This is called quantitative tightening, another euphemism, and it just means selling off treasuries and mortgage-backed securities owned by the Fed and sometimes other financial assets, thereby extinguishing money the Fed previously created. It's anti-inflationary, and that's good news for the American public. Warsh has correctly pointed out that the previous rounds of quantitative easing were giveaways to Wall Street that caused asset prices like stocks and real estate to explode while Main Street was left with inflation.

Starting point is 00:07:58 He called it Reverse Robin Hood. The corrective action is to do the opposite. Sell off those assets and lower interest rates. Paring this with an end to the ill-advised policy of paying banks not to lend money will further lower interest rates for consumers on everything, from mortgages to credit cards to auto loans. It'll even lower the interest on the national debt. A gargantuan problem left over from Biden, under whose tenure the interest on the debt doubled. Lastly, there seems to have been an interesting vote by market participants in Warsh's favor. Prices for precious metals have been on an absolute tear, largely due to fears that government debt and Fed policy were getting out of control. The Warsh announcement doused the fire. Gold dropped 5% immediately, silver plunged 15% while the dollar jumped. If Warsh is confirmed and can clean up the Fed, it'll

Starting point is 00:08:58 reassure financial markets and help deliver a Main Street boom without inflation or another financial crisis. That sounds a heck of a lot better than anything Powell and company have ever delivered. This is E.J. Antony for the Daily Signal.

The Daily Signal - Jerome Powell’s Fed Fueled Inflation and Left Main Street Paying the Price | E.J. Antoni, Ph.D

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