I thought Jerome Powell was the one who said it. Edit: Yeah he was, so they both said it: https://reason.com/2022/05/19/jerome-powell-who-wildly-misju...

Before I say all this, please please please don't be the guy who replies with fed nihilism. You're not cool or edgy just because you think the fed is hopelessly corrupted and its only role in American is to keep an asset/everything bubble inflated. Take that mess back to the comments under Joe Rogan's YouTube videos.

Ok, so the key takehome for all of this, to me, is that by the end of this decade, we are going to be some serious Fed reform. The Biden team is trying to finesse something here that's unfinesseable.

Right now, this pageantry is about Biden trying to find his footing with respect to the economic packages his party expects him to push forward in the run up to the midterms. In 2020, his party pulled out a few surprise wins in states like Georgia to win a thin majority in the Senate by promising people $2,000 checks as a Covid-stimulus. Now, he has to do something that makes good on that promise, and the likely best move is to find a way to forgive consumer debt.

The thing is, if he does that and it pushes inflation in the wrong direction, he's going to come off like (even more of) a total klutz. So, he's trying to preempt the narrative out there that he's Jimmy Carter, Part 2: a one term, deeply religious but left-liberal president who was put into office after a menace was removed who fumbled his way into stagflation. He can't avoid that though. His op-ed in the WSJ this weekend illustrates the point: it's mid. Same with the milquetoast policies he's got Yellen up here selling: total mid. The concept is that policies his administration has already put into place are fighting inflation. As they say in D.C., that dog won't hunt. If Biden is already fighting inflation, why are there pictures of >$9 gas/gallon popping up in L.A.? Why is the price of chicken so high?

What's worse for his political prospects is what's coming: he's going to keep pushing for stimulative spending/consumer debt relief. If he doesn't give economic benefits to his base to make good on that $2k promise, they will not show up for the midterm. That's the 2022 political reality.

Here, to make way for more inflation-spurring policies, I imagine Yellen has to fall on the sword for the current state of inflation, even though she was the former Fed Chair, not the current one, and the current Fed Chair (Trump-appointed/Biden-Reappointed), whose independence Biden is supposedly respecting, Jerome Powell, is the one publicly branded with the "transitory" remark. I think that's Biden trying to give space to Powell to make it that much easier for his Fed to continue their 180-degree flip on whether to use their tools to fight inflation by cooling the economy. So far, Powell is publicly declaring that he's channeling the Carter-appointed Fed Chair Paul Volcker, who raised interest rates dramatically and beat back inflation in the early 80s. Biden is giving Powell room to Volckerize, and my bet is Biden hopes Powell will take his final form a month or two after the midterms, but not before. But all of this is just absurd theatre that's attempting to thread an unthreadable needle: the Fed helped to cause this bubble, and it needs to be reformed.

If you've been following Powell's remarks over the last few months, he has moved from inflation is transitory TO it's time to increase the fed funds rate to hem in the economy through a "soft" landing TO it may not be a soft landing, but the landing will be "soft-ish." Why is Yellen the one to take the blame for that? She shouldn't. But what Biden needs Powell's Fed to do is continue to increase that rate by 50 basis point at each of the upcoming meetings, clear the Mortgage Backed Securities off its balance sheet, and then after the midterms amp the rate up ASAP by 75 basis points at a click or more, so that we can start that recession quickly then hopefully find our way toward something Biden can call a "recovery" by the time 2024 elections roll around. And the Fed isn't going to do that if there's overt pressure from the administration.

I'm listening to Bernanke's latest book on audible (read by the same guy who reads WaPo David Ignatius's thriller novels), and he goes out of his way to decry any political pressure that elected officials apply to the Fed. But that doesn't mean the Fed isn't mindful that if it fails to exercise its "policy tools" in a way that seems reasonable to elect officials, those officials can yank that independence away. Between abolishing the filibuster, packing the Supreme Court, and rendering the Fed less independent, my money (ha) would be on the third option being the most palatable to the most amount of Americans as a way for Biden to make a bold mark on American institutions toward the end of his first term.

Right now, there's a very careful dance. Biden will try to survive the midterms by arming the Ukranians, emphasizing background checks for guns, and forgiving debt. But after this is all over, and the way the federal government has twisted itself into knots to avoid reforming the fed all for naught, the fed is going to have to be reformed.