Jay Powell has gone full Volcker

This story is part of CNN Business’ Nightcap newsletter. To receive it in your inbox, sign up for free, here

New York
CNN business

Earlier this year, the idea of ​​the Fed raising rates by three quarters of a percent was off the menu. But in just a few months, that big jump has become the norm, almost certainly sealing Jay Powell’s 2020 Paul Volcker status.

Here’s the deal: The Federal Reserve made history today by approving its third consecutive interest rate hike of 75 basis points. Once again, the Fed is trying to take inflation out of the economy by using its most powerful and broadest lever: controlling how much it costs businesses and people to borrow money.

The benchmark lending rate is now the highest it has been since the global financial crisis of 2008, reports colleague Nicole Goodkind.

So here’s what you need to know:

  • The 75-base play was highly anticipated.
  • But still, the market fell due to a change in the so-called dot plot, which indicated that the Fed’s next two meetings would see a 75-point hike and then a 50-point hike. That’s 25 basis points more than Wall Street was counting, and it’s a tricky bunch that investors tend to have a conundrum when caught off guard.
  • All three major US stock indexes fell after the Fed’s announcement. Then he tried a rally. Then he fell again. It was a wild afternoon.
  • What does all this mean for us ordinary people? I’m sorry to say it, but the “pain” the Fed chief warns of is mostly pain for lower- and middle-class people who are facing layoffs, reduced hours or wages, and trouble paying their credit card debt as fees. go up. Mortgage rates, which are more than double what they were a year ago, will also continue to rise.

One of Powell’s biggest critics, Senator Elizabeth Warren, quickly fired off a tweet denouncing the “extreme” hike, as the Fed itself expects unemployment to rise to 4.4% from the current 3.7% – more than a million jobs.

“President Powell just announced another extreme interest rate hike while predicting higher unemployment,” Warren noted. “I have warned that Chair Powell’s Fed would put millions of Americans out of work, and I fear that it is already well on its way to doing so.”

Powell doesn’t like to say words like “layoffs” or “job cuts.” But he does not take kindly to what he euphemistically calls “the softening of labor market conditions”. He thinks the short-term pain of a recession would be preferable to the longer-term pain of entrenched inflation.

He said that in order to continuously strengthen the labor market, we must leave inflation behind. “I wish there was a painless way to do it. There is not”.


To understand the Fed, it helps to understand Powell.

In his role as head of the central bank, he has made no secret of his admiration for Paul Volcker, whose name is almost synonymous with fighting inflation at all costs, even as he operates in a recession. That’s exactly what Volcker’s Fed did—twice—in the early 1980s.

In congressional testimony this spring, Powell described Volcker as a hero, calling him “the greatest economic public servant of our time.”

(Fun fact: The 6-foot-7 Volcker was also known in DC by his nickname, “Tall Paul.”)

At least twice in the past month, Powell has publicly called out the title of Volcker’s 2018 biography, “Keeping At It.” Last month, during a speech in Jackson Hole, Powell stated that “we have to keep at it until the job is done.” And again on Wednesday: “Now we want to play aggressively and … continue, until the end.”

Part of the reason Powell and others remember Volcker so well is that he needed a shrewd mind and an iron stomach to a) understand the problem of inflation, and b) implement the painful shock therapy of interest rate hikes costing billions. people’s work Volcker’s plan worked, but yes really sip a little There really was some painTo borrow Powell’s euphemistic phrase.

Inflation is now at its highest level since Volcker led the Fed, and the central bank itself faces a crisis of credibility without moving quickly enough to keep rising prices under control.

Credibility was also a major concern for Volcker.

“Volcker’s mantra, which he told me over and over in 2008-9, was that the only asset you have in a crisis is your credibility,” Austan Goolsbee, an economist who advised the Obama administration, wrote after Volcker’s death in 2019. 92 years

Bottom line: Powell continues to draw from Volcker’s playbook, which means he won’t waver on the Fed’s 2% inflation target rate, lest the central bank’s credibility take another hit. Only time will tell if that 40-plus-year-old playbook still applies in an economy fundamentally different from the one Volcker faced.

Congratulations, rich people – you’re climbing the ranks. Thanks to gains in the stock market and rising home prices, the world gained another 5.2 billion last year, almost half of which is in the United States. It’s the largest increase in the number of billionaires of any country this century, according to Credit Suisse’s annual global wealth report released this week.

The total number of million was 62.5 million at the end of 2021. Aggregate global wealth rose nearly 10% to a total of $463.6 trillion at the end of last year.

Meanwhile, the pandemic has pushed about 100 million people into extreme poverty, raising the total to 711 million in 2021, according to the World Bank.

Donald Trump, who is facing multiple criminal investigations by federal and state prosecutors into his company’s finances, meddling in the 2020 election and the handling of classified documents, was recently indicted in a wide-ranging, decades-long spread. fraud

Here’s the deal: New York State’s attorney general filed a lawsuit against the former president, his three children and the Trump Organization, the culmination of a three-year investigation into the family and its namesake company.

The lawsuit is more than 200 pages long and includes allegations of fraud that touched every aspect of the Trump business. Let’s break down some of its key points:

  • The Trump Organization defrauded lenders, insurers and tax authorities by inflating the value of its properties using misleading appraisals, the lawsuit alleges. It highlights “200 false and misleading valuations” of Trump’s assets.
  • “The statements of financial condition were exaggerated, grossly inflated, objectively false and therefore fraudulent and illegal,” James said.
  • The defendants in the case include the former president; his children, Donald Trump Jr., Eric Trump and Ivanka Trump; Allen Weisselberg, former chief financial officer of the Trump Organization; and Jeff McConney, another executive.
  • James referred the charges to the US Attorney’s Office for the Southern District of New York and the Internal Revenue Service.
  • It seeks $250 million in allegedly ill-gotten funds and to permanently bar Trump and the children named in the lawsuit from serving as directors of any business registered in New York State. He also wants to revoke the Trump Organization’s corporate certification, which, if granted by a judge, could force the company to cease operations in the state.

Trump has denied all charges against him. He previously called James a “renegade prosecutor” and said he was conducting a “vindictive, self-serving fishing expedition.”

In response to the latest lawsuit, a Trump lawyer reiterated his disdain for James, saying the filing “is focused on neither the facts nor the law, but is focused solely on advancing the attorney general’s political agenda, adding that there is ‘absolutely nothing wrong’ that happened.”

Weisselberg’s lawyer declined to comment.

Here is one of the 200 examples cited in James’ lawsuit:

  • In Manhattan’s Financial District, there is a property called 40 Wall Street, also known as the Trump Building.
  • In 2010 and 2012, the property was assessed at $200 million and $220 million, respectively, according to the lawsuit. But Trumps company repeatedly said the property was worth more than twice that in official financial statements.
  • Trump also lied about the square footage of his Trump Tower triplex apartment to inflate the value by more than $300 million, according to James. While the apartments covered more than 30,000 square feet, the actual measurement was less than 11,000 square feet, he said.
  • “Based on that inflated square footage, the value of the apartment was … $327 million. To date, no apartment in New York has ever sold for anywhere near that amount,” James said.

There is a lot to unravel in this case. My CNN colleagues are from everything.

Enjoying a nightcap? Give your name and you’ll get all that, and other fun stuff we love on the internet delivered to your inbox every night. (Okay, most nights – around here we believe in the four-day work week.)