Jerome Powell warns about not varying the annual stress tests on banks

As financial institutions and the financial system evolve, stress testing will need to keep up. When the next episode of financial instability presents itself, it may do so in a messy and unexpected way. Banks will need to be ready not just for expected risks, but for unexpected ones. Thus, the tests will need to vary from year to year, and to explore even quite unlikely scenarios. 

If the stress tests do not evolve, they risk becoming a compliance exercise, breeding complacency from both supervisors and banks. We might also, inadvertently, encourage the development of a banking system where, over time, all banks would look much alike rather than the banking system we want and need, one with diverse institutions with different business models. We simply can't let these things happen. 

~ Federal Reserve chairman Jerome Powell, prepared remarks for stress-testing conference at the Federal Reserve Bank of Boston, July 9, 2019

(As quoted in "Fed’s Powell Says Stress Tests Must Evolve to Avoid Bank Complacency: Annual exam must explore unexpected scenarios or it might fail to prepare financial system for next downturn," The Wall Street Journal, July 9, 2019.)

Barry Sternlicht on Jay Powell: "I feel like he's the captain driving the Titanic into the ocean"

We're not arguing that the Fed has to act to bring down inflation, but we need to understand where the inflation came from.  It came from all those global stimulus packages on the back of the reopening global economy.  It was to the moon and beyond.  They missed the meme stocks, they missed the casino and now that we're building momentum and people are getting employed, and wages are rising, now they want to stomp on the whole thing and end the party.  I feel like he's the captain driving the Titanic into the ocean.  Consumers in the U.S. are still spending, but it's inevitable that they can't keep this up.  So the Fed has to stop... They're going to cause unbelievable calamities if they keep up their actions, not just here, but all over the whole globe.

~ Barry Sternlicht, CNBC interview, 2:20 mark, October 4, 2022

Doug Pollitt on gold, Powell and Pacino

We didn’t go to Denver this year, which was apparently all about copper anyway.  That and battery metals.  Gold’s not selling, so dance as dance can. 

Turns out, nothing is selling, not copper nor battery metals nor any other commodity.  Nor, for that matter, equities in general.  Critically, even “risk-off” assets also look askance for bids.  The mood in Denver was grim but if you really wanted to feel what it was like to have your face ripped off you might have attended a convention of UK 2-yr gilt holders.  The WSJ front page thundered: “Gold losing its safe haven status”; it could have been far more broad-minded without any loss of accuracy. 

The driver in all this is a Fed trying to fix four decades of monetary profligacy within a forecastable time frame, presumably before the Chairman’s tenure is up.  Listening to Powell last week you got the sense that he feels that he and only he can solve this problem and that if he doesn’t, our economic future totters on the wrong side of the abyss.  Accordingly, “[W]e shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our island, whatever the cost may be.”

The problem is that Powell has neither air force nor army. Instead, he has a single policy tool, a blunt instrument that, historically, has been effective only in places. For example, it is easy to see that Europe could raise rates to 20% and the price of gas still would not be affordable. Higher rates are also likely to increase the cost of some things. It’s not straightforward. Powell may fancy himself a Churchillian figure but a better image may be Al Pacino in the final scene of Scarface, spraying his machine gun in front of a giant pile of cocaine.

~ Doug Pollitt, "Powell's quick fix," September 27, 2022

Jim Grant on the risk of monetary deflation

Von Mises said that deflation can never undo the harm that inflation causes, and he warned central bankers against imitating the motorist who, after running over a pedestrian, stops his car, throws it into reverse and backs it up over the same hapless victim.  Whether Jay Powell has the stomach for that second sickening bump remains to be seen.

~ Jim Grant, "The CDC at Jackson Hole," Grant's Interest Rate Observer, September 2, 2022

Jerome Powell on fighting inflation (2022)

My colleagues and I are strongly committed [to lowering inflation]...  We think we can avoid the kind of very high social costs that Paul Volcker and the Fed had to bring into play.

~ Fed chairman Jerome Powell, comments at a Cato Institute conference, September 8, 2022

Jerome Powell: "There's no sign of a broader slowdown that I can see in the economy"

You see continuing shifts in consumption, you see some sales going down, but overall spending is very strong.  The consumer's in really good shape financially.  They're spending.  There's no sign of a broader slowdown that I can see in the economy.

~ Federal Reserve chairman Jerome Powell, FOMC meeting, June 15, 2022

Jerome Powell on the CARES Act

We won't run out of money.

~ Jerome Powell, "Powell urges Congress to unleash 'great fiscal power' to defeat coronavirus, repair economy," The Hill, April 29, 2020

Larry Lepard on what Fed policy is doing to the middle class

They are causing the middle class to suffer.  For Jay Powell to say "the Fed doesn't cause wealth inequality" is just complete and utter bullshit.

~ Larry Lepard, interview with Daniela Cambone, Stansberry Research, 20:20 mark, September 24, 2021

The Washington Post uses Colin Powell's death to push vaccination

The lesson we should learn... is that the vaccines work best when they work broadly and that, had Powell been protected both by the vaccine and by low rates of infection in his community, he might still be alive. 

~ Philip Bump, "Colin Powell's dealth is a Reminder that vaccination is about every person, not just one person," The Washington Post, October 18, 2021

(Colin Powell died of Covid-19 earlier in the day at the age of 84.  He was fully vaccinated.)

Barron's on Jerome Powell, the Great Stabilizer

[T]he Washington leader... has done more than any other to stabilize the U.S. economy...

Faced with a pandemic that has forced Americans to stay in their homes and shut down their businesses, the Fed, under Powell’s leadership, acted swiftly to prevent a major financial catastrophe from unfolding. The central bank cut interest rates to near zero, unleashed enormous bond-buying programs, deployed new lending facilities, and went far beyond what any Fed had done in the past...

[M]onetary policy is set to remain a steadfast support for the U.S. economy, and a backstop that takes the worst-case financial-market outcomes off the table. At the center of that will be Powell, whose term runs until February 2022.

~ Barron's, "Fed Chief Steers a Steady Course in a Turbulent Time," by Nicholas Jasinski, October 31, 2020

"No matter what happens
on Election Day, count
on Fed Chariman Jerome
Powell as the stabilizing
force for the economy
and the markets."

Jerome Powell on the Fed's corporate bond buying

It was out of an excess of caution to preserve these gains for market function by following through.  And I don't see us as wanting to run through the bond market like an elephant doing things and snuffing out price signals and things like that.  We just want to be there if things turn bad in the economy.

~ Jerome Powell, Semiannual Monetary Policy Testimony, June 16, 2020

Jerome Powell on inequality and monetary policy

Inequality is something that’s been with us increasingly for more than four decades and it’s not really related to monetary policy.

~ Jerome Powell, Federal Reserve chairman, June 10, 2020

Scott Pelley of '60 Minutes' asks Jerome Powell, "Fair to say you simply flooded the system with money?"

Scott Pelley: Fair to say you simply flooded the system with money?

Jerome Powell: Yes. We did. That's another way to think about it. We did.

Scott Pelley: Where does it come from? Do you just print it?

Jerome Powell: We print it digitally. So we-- you know, we-- as a central bank, we have the ability to create money digitally and we do that by buying Treasury Bills or bonds or other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.

~ Jerome Powell, 60 Minutes interview, May 17, 2020

Jerome Powell warns about the risks of creating asset bubbles

I think we are actually at a point of encouraging risk-taking, and that should give us pause.

~ Jerome Powell, October 2012 FOMC meeting

Jim Grant is asked about Fed chairman Jerome Powell's press conference and stock market's negative reaction

Grant: I don't think it's a matter of communications policy.  I think it's a matter of substance.  To me, the clear and present risk is the consequences - unintended though they may be - of ten years of suppressed and distorted interest rates with the attendant distortions in both the so-called real economy and especially in the financial economy where leverage has been piled upon leverage.

CNBC: So this is inevitable, this kind of negative reaction.

Grant: Certainly after ten years of the lowest interest rates, literally in the 3,000 years of recorded history.

CNBC: We get that you didn't agree with the policy before, but right now are they making a mistake?

Grant: It's not a question of agreeing with it.  The consequences of ten years of distorted interest rates are things that we can't always see, but which are nonetheless there.  For example, the distortions of the leveraged loan market with fine print that's supposed to protect investors has been eviscerated or written down.  Green investments proliferate because there are no interest rates.  Interest rates are meant to measure risk, discount future cash flows and set investment hurdle rates.  When those things are absent or distorted, decisions in real time - real things - are not as they might be.  And exactly what is wrong is revealed in time.  Now, the stock market is a forward looking indicator.  The economy is not a forward looking indicator, right?

~ Jim Grant, interview on CNBC, December 19, 2018