The Morning Call tells Fed-haters that the joke's on them

This past Monday, three of this nation’s finest economic minds decided that they had finally had enough of the Federal Reserve behavior, and they were no longer going to keep quiet about it.  With the Fed insisting that inflation must be called “transitory” at least until a loaf of bread costs one wheelbarrow full of cash, insisting on keeping rates at historic lows, and insisting that “easing” is just the name we give to the things we choose to do together, some very important and very smart people have had enough:

Reps. Alexandria Ocasio-Cortez, Rashida Tlaib and Ayanna Pressley on Monday called for Federal Reserve Chair Jerome Powell to be replaced, stepping up the pressure on President Joe Biden as he draws closer to a decision on the government’s most important economic post….

“As news of the possible reappointment of Federal Reserve Chair Jerome Powell circulates, we urge President Biden to re-imagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice,” the lawmakers said in a joint statement to POLITICO. “We urge the Biden Administration to use this opportunity to appoint a new Federal Reserve Chair.”

They acknowledged that the Fed under Powell “has made positive changes” by steering the central bank toward a greater emphasis on reaching full employment. But they said they want to see someone at the helm who is more aggressive on financial regulation and climate change.

“Under his leadership, the Federal Reserve has taken very little action to mitigate the risk climate change poses to our financial system,” said Ocasio-Cortez (N.Y.), Tlaib (Mich.) and Pressley (Mass.), all of whom sit on the House Financial Services Committee. Reps. Chuy García (D-Ill.), another committee member, and Mondaire Jones (D-N.Y.) also signed on.

“At a time when the Intergovernmental Panel on Climate Change is warning of the potential catastrophic and irreversible damage inflicted by a changing climate, we need a leader at the helm that will take bold and decisive action to eliminate climate risk,” they said.

Our first reaction to this was to sigh – heavily.  This was soooo very predictable.  In fact, we DID predict it, last November, when it became clear that Joe Biden would be the next president.  He will politicize the SEC, and he will politicize the Fed, we warned, expanding the Total State to every corner of the federal financial universe.

Sometimes, we hate it when we’re right.

Our second reaction, however, was to laugh.  They want the Fed to be woke, eh?  Well, the joke’s on them.

The Fed is already woke.

Chapter 8 of The Dictatorship of Woke Capital is titled “The Players, Part One: On the Left.”  It is, by far, the longest chapter in the book, running 40 pages.  The last five pages of that chapter are dedicated to “The Fed/Central Banks.”  Among other things, I write:

In its pursuit of overtly social and political ends that are far removed from its mission and mandate, the Fed has been aided, pushed, pulled, and prodded by other institutions—the U.S. Senate, the Democratic Party, etc. The most relevant and most powerful accomplices, however, are the Fed’s global counterparts—the Bank of England, the Bank of Japan, and the European Central Bank. All have played their part in encouraging the Fed to expand the scope of its efforts to impose on markets an unac­countable, top-down financial infrastructure that explicitly and enthu­siastically rewards social and political behavior that serves elite interests and punishes dissent.

The narrative about the “need” for central bank action on climate change in particular first began to take shape in late 2015 and early 2016. On September 22, 2016, Mark Carney, governor of the Bank of England and chair of the Monetary Policy Committee, gave a speech in Berlin in which he worded the narrative very carefully and very provocatively, in language specifically chosen to reframe the case for central bank inter­vention in financial and fiduciary terms. “A wholesale reassessment of prospects, as climate-related risks are re-evaluated,” he warned, “could destabilise markets, spark a pro-cyclical crystallisation of losses and lead to a persistent tightening of financial conditions: a climate Minsky moment.”84 A “Minsky moment” is a market term named for the econo­mist Hyman Minsky, and it is used to designate the point at which a bull market has become so speculative and over-leveraged that it hits a peak and then tips over and crashes. What Carney was saying, in other words, is that he believes a time will come when markets will have bet­ter knowledge of the risks associated with climate change, and they will realize, as those risks are processed, that they had speculated wildly on securities that are unsuited for the new climate reality. And then the markets will crash.

This, then, was a watershed in global finance, the moment that the big banks, the monster investment firms, and the world’s central banks began framing climate change as a risk management issue rather than good corporate social policy. By insisting that climate change is a fidu­ciary issue and that anyone who disagrees is betraying his clients’ trust, the giants of global finance were not only able to change the narrative but were able to do so by claiming the fiduciary moral high ground as well.

Everything beyond this is just sorting out the details.  The Fed is moving more slowly than both the European Central Bank and the Bank of England.  To date, Fed Chairman Jay Powell has refused to impose a climate-change stress test on banks.  At the same time, however, last November, he did have the Fed join the Network for Greening the Financial System.  AOC, Tlaib, and Pressley aren’t asking for the Fed to alter its mission, in other words, they’re asking it to do so more quickly, more recklessly.

So, what does this mean?  Well…it means we’re screwed.  If there is one thing we have learned about the Fed over the last century, it’s that it can only have one mission at a time.  It cannot control inflation and still spur economic growth.  It cannot pursue full employment and keep inflation subdued.  It cannot create and use extraordinary powers to manage an economic emergency without creating a future emergency.  This is not a perfect world, and the Fed is not a perfect institution – far from it.  It cannot do everything at once and be everything to everyone.  It has to pick its battles.

As the Fed joins the world’s other central banks in accelerating its battle against the weather, it will have to sacrifice its other missions.  Economic growth, controlled inflation, full employment, etc. will ALL take a backseat to preserving Martha’s Vineyard for future generations of ex-presidents.

That’s the bad news.

The good news is that this will continue only until the big banks and other financial institutions have had enough of it.  In Chapter 2 of the book, I retell the story of the Fed’s creation, including the secret trip to Jekyll Island.  The point of telling that tale was to reinforce the fact that the Fed is an institution of the Big Banks, by the Big Banks, and FOR the Big Banks.  The Fed was created specifically to give the professional business-class control over as much of the financial universe as possible.    

As long as the Larry Finks, Brian Moynihans, and Jamie Dimons of the world believe that they can do extremely well while professing to do good, the Fed will support that mission.  When their schemes strategies change, however, so will the Fed’s.

It’s kinda cute that the members of The Squad think they can control the Fed.  They can’t.  They can – and should – be grateful for these moments when the Fed’s values align with theirs.


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