(Bloomberg) — Jerome Powell faces a plethora of politically tricky economic problems with little precedent in the Federal Reserve’s 107-year history now that he’s been tapped to lead the central bank for another four years.
The thorny topics crowding the Fed chair’s inbox run the gamut, from managing an economy coming out of a once-a-century pandemic to deciding whether to create a digital dollar. The stakes are high: a misstep on any of a number of fronts could upend the economic expansion and trigger a recession.
“The Fed is facing the most difficult period in its history” since Paul Volcker was chair more than a quarter century ago, Bloomberg Opinion columnist and former central bank official Claudia Sahm said.
Making the job even tougher: A highly partisan political milieu in which the Fed is increasingly seen as no longer above the fray and in which its reputation has been besmirched by a trading scandal involving a few policy makers.
Overseeing the Economy
This is always at the top of the inbox of any Fed chair. But what’s different this time is that the central bank is confronting a policy quandary not seen in decades.
Inflation is running well above the Fed’s 2% target, while the central bank is falling short of its maximum-employment objective. That’s a combination policy makers didn’t envisage when they adopted a new monetary policy framework in 2020 aimed at lifting inflation after years of below target price rises.
Amid the acceleration in price growth, the Fed looks on course to consider a more rapid drawdown of its mammoth $120-billion-per-month bond-buying program just weeks after it instituted a plan to scale the purchases back in a methodical manner.
Last week, Vice Chair Richard Clarida, Governor Christopher Waller and St. Louis Federal Reserve Bank President James Bullard signaled that the topic of a faster taper might be on the table when the Federal Open Market Committee meets Dec. 14-15.
A faster reduction in the so-called quantitative easing program would give policy makers an earlier opportunity to lift interest rates from near zero should they deem that necessary to keep the economy from overheating.
Ensuring Financial Stability
The Fed’s super-lax monetary policy has encouraged investors to take on more risk and pushed stock, housing and other asset prices into the stratosphere. The result is what Fed staffers have called “notable” vulnerabilities that leave the financial system susceptible to breakdown.
The explosive growth of cryptocurrencies and related assets also poses potential risks to the system, particularly the rise of stable coins as an alternate means payment to the dollar.
Create a Digital Dollar?
The takeoff of stablecoins is putting pressure on the Fed to follow the lead of China and issue its own digital currency.
Proponents argue that would help expand access to the financial system to the millions of Americans without a bank account and speed up and lower the cost of transactions. Opponents warn it would risk hollowing out the banking system as money was yanked out of the financial institutions and parked in digital dollars at the Fed.
It’s “a battle for the soul of the financial system,” said former Bank for International Settlements economic adviser and digital-dollar skeptic Stephen Cecchetti.
A decision to go ahead would probably require at least the tacit approval of lawmakers, potentially enmeshing the Fed in politically treacherous terrain.
Repairing the Fed’s Tarnished Reputation
That terrain will be all the more trickier to traverse after the central bank’s reputation as straight-shooting economic steward took a knock with the revelation that some policy makers traded in financial securities while the Fed was aiding the markets and the economy.
The news led to the resignations of the Dallas and Boston reserve bank presidents and the adoption of strict new curbs on trading by top Fed officials, including a ban on the buying of individual stocks and bonds.
This “is a start, but we can’t let up now,” Senate Banking Committee Chair Sherrod Brown, the Ohio Democrat who leads the panel that oversees the Fed, said in a statement after the restrictions were announced on Oct. 21. “The American people need to be able to trust that the Federal Reserve works for them.”
Also hanging over the Fed: an ongoing probe into the trading scandal by its internal watchdog.
Climate Change
The Fed is already caught up in a tug-of-war between Democrats and Republicans over what it can and should do to combat global warming.
After years of lagging other central banks, the Fed has ramped up its research on climate change and is actively considering the risks that a warming planet poses to financial stability. In the past year, bank officials created a climate committee, joined a key global group of central banks on the issue and began working with the Treasury Department on Biden’s climate executive order.
But that has failed to appease progressive Democrats, some of whom opposed Powell’s renomination before it was announced. They want the Fed to be far more active in fighting climate change. Some Republicans, meanwhile, have accused the central bank of mission creep.
Inequality
The Fed is also caught in the political crosshairs in the debate about income and racial inequities.
Policy makers have been far more forthright than in the past about the deleterious effects such disparities can have on the economy. And, as part of their new monetary framework, they’ve broadened their definition of their maximum employment goal to make clear they’re seeking “broad-based and inclusive” job gains.
But they’ve faced criticism from the left for contributing to the very income inequality they decry by pursuing an aggressive quantitative-easing program that has pumped up the prices of stocks and other assets mainly held by the rich. And they’ve been attacked for being a largely White man’s club short on racial and gender diversity.
Biden could address these issues in coming weeks. He will announce his pick for Fed vice chair of supervision along with additional nominations for open seats on the Board of Governors beginning in early December, the White House said Monday.
Democrats have also been urging the central bank to improve diversity among the Fed’s leadership with its picks of presidents to head the Dallas and Boston reserve banks, while Republicans are warning it to not be swayed by political pressure.
Quebec legislature member Youri Chassin has announced he’s leaving the Coalition Avenir Québec government to sit as an Independent.
He announced the decision shortly after writing an open letter criticizing Premier François Legault’s government for abandoning its principles of smaller government.
In the letter published in Le Journal de Montréal and Le Journal de Québec, Chassin accused the party of falling back on what he called the old formula of throwing money at problems instead of looking to do things differently.
Chassin says public services are more fragile than ever, despite rising spending that pushed the province to a record $11-billion deficit projected in the last budget.
He is the second CAQ member to leave the party in a little more than one week, after economy and energy minister Pierre Fitzgibbon announced Sept. 4 he would leave because he lost motivation to do his job.
Chassin says he has no intention of joining another party and will instead sit as an Independent until the end of his term.
He has represented the Saint-Jérôme riding since the CAQ rose to power in 2018, but has not served in cabinet.
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – NDP Leader Jagmeet Singh says he will not be taking advice from Pierre Poilievre after the Conservative leader challenged him to bring down government.
“I say directly to Pierre Poilievre: I’m not going to listen to you,” said Singh on Wednesday, accusing Poilievre of wanting to take away dental-care coverage from Canadians, among other things.
“I’m not going to listen to your advice. You want to destroy people’s lives, I want to build up a brighter future.”
Earlier in the day, Poilievre challenged Singh to commit to voting non-confidence in the government, saying his party will force a vote in the House of Commons “at the earliest possibly opportunity.”
“I’m asking Jagmeet Singh and the NDP to commit unequivocally before Monday’s byelections: will they vote non-confidence to bring down the costly coalition and trigger a carbon tax election, or will Jagmeet Singh sell out Canadians again?” Poilievre said.
“It’s put up or shut up time for the NDP.”
While Singh rejected the idea he would ever listen to Poilievre, he did not say how the NDP would vote on a non-confidence motion.
“I’ve said on any vote, we’re going to look at the vote and we’ll make our decision. I’m not going to say our decision ahead of time,” he said.
Singh’s top adviser said on Tuesday the NDP leader is not particularly eager to trigger an election, even as the Conservatives challenge him to do just that.
Anne McGrath, Singh’s principal secretary, says there will be more volatility in Parliament and the odds of an early election have risen.
“I don’t think he is anxious to launch one, or chomping at the bit to have one, but it can happen,” she said in an interview.
New Democrat MPs are in a second day of meetings in Montreal as they nail down a plan for how to navigate the minority Parliament this fall.
The caucus retreat comes one week after Singh announced the party has left the supply-and-confidence agreement with the governing Liberals.
It’s also taking place in the very city where New Democrats are hoping to pick up a seat on Monday, when voters go to the polls in Montreal’s LaSalle—Émard—Verdun. A second byelection is being held that day in the Winnipeg riding of Elmwood—Transcona, where the NDP is hoping to hold onto a seat the Conservatives are also vying for.
While New Democrats are seeking to distance themselves from the Liberals, they don’t appear ready to trigger a general election.
Singh signalled on Tuesday that he will have more to say Wednesday about the party’s strategy for the upcoming sitting.
He is hoping to convince Canadians that his party can defeat the federal Conservatives, who have been riding high in the polls over the last year.
Singh has attacked Poilievre as someone who would bring back Harper-style cuts to programs that Canadians rely on, including the national dental-care program that was part of the supply-and-confidence agreement.
The Canadian Press has asked Poilievre’s office whether the Conservative leader intends to keep the program in place, if he forms government after the next election.
With the return of Parliament just days away, the NDP is also keeping in mind how other parties will look to capitalize on the new makeup of the House of Commons.
The Bloc Québécois has already indicated that it’s written up a list of demands for the Liberals in exchange for support on votes.
The next federal election must take place by October 2025 at the latest.
This report by The Canadian Press was first published Sept. 11, 2024.
Montreal Mayor Valérie Plante is defending her decision to turn off comments on her social media accounts — with an announcement on social media.
She posted screenshots to X this morning of vulgar names she’s been called on the platform, and says comments on her posts for months have been dominated by insults, to the point that she decided to block them.
Montreal’s Opposition leader and the Canadian Civil Liberties Association have criticized Plante for limiting freedom of expression by restricting comments on her X and Instagram accounts.
They say elected officials who use social media should be willing to hear from constituents on those platforms.
However, Plante says some people may believe there is a fundamental right to call someone offensive names and to normalize violence online, but she disagrees.
Her statement on X is closed to comments.
This report by The Canadian Press was first published Sept. 11, 2024.
