THE PROSPECT OF ANOTHER 75 BASIS POINT RATE HIKE next week has finally stirred critics who believe the Federal Reserve is too aggressive. Chairman Jerome Powell is becoming politicized; could he face internal pressure within the Fed?
THE LATEST DEVELOPMENT is release of a letter from Ohio Sen. Sherrod Brown, accusing the Fed of risking higher unemployment. The Fed’s mandate, Brown noted, is to ensure stable inflation and full employment.
THIS IS TAME COMPARED TO THE SCATHING CRITICISM of Fed policies from Donald Trump. He called the Fed an “enemy,” notes Jeff Cox on the CNBC web site this morning. But Brown, a liberal, reflects a growing uneasiness over Fed policies.
CRITICISM FROM POLITICIANS is one thing; criticism within the Fed — and in the markets — is another issue. Fed Vice Chairwoman Lael Brainard raised eyebrows with a speech earlier this month that cautioned against tightening too aggressively. A pause this winter might be necessary, she said, as officials ascertain the impact of this year’s hikes.
AND IN THE MARKETS, there’s growing criticism of the Fed’s bitter medicine. Two leading critics are the highly regarded stock guru Jeremy Siegel and James Paulsen at the Leuthold Group. Paulsen recently said the Fed has “gone rouge” and should end its tightening soon since inflation in many sectors has begun to fall.
A 75 BASIS POINT HIKE STILL LOOKS VIRTUALL CERTAIN NEXT WEEK, but posturing will begin immediately after that on the next showdown, the Dec. 13-14 FOMC meeting. A less aggressive move — probably 50 basis points — will have some support. That won’t necessarily satisfy the critics; they want the rate hikes to end by late winter, and they might get their wish.
THREAT OF A RAIL STRIKE IS STILL ON THE TABLE: A second major union of railroad workers has voted to reject a settlement that President Biden brokered in mid-September, raising the threat of a supply chain crisis just a few weeks ahead of the holidays.
THE BROTHERHOOD OF RAILROAD SIGNALMEN overwhelmingly voted this week to reject the proposal that appeared close to ratification a month ago. But prospects for a settlement already had slipped when another rail union rejected the deal in mid-October — not because the salary hikes weren’t generous, but because of a simmering dispute over paid sick leave.
THE INITIAL DEAL THAT BIDEN BROKERED contained a 14% salary hike in the first year and generous immediate cash payments averaging $5,000.
TALKS WILL CONTINUE WELL INTO NOVEMBER under a “status quo” arrangement in which workers will not go on strike yet. But if there’s no deal by early December, concern will grow again over supply chain issues — ironically, just as an enormous backlog at California ports has been largely resolved.
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