Putin plays Powell – and America pays the price

It’s tempting to think that Fed Chairman Jerome Powell deserves to be the sour tree he’s on: He dismisses inflation as “transient” when it isn’t. Now – after one of the biggest policy blunders in recent Fed history – he needs to raise rates, possibly significantly.

But the timing couldn’t be worse: A much needed and substantial rate hike is coming amid global uncertainty caused by Russia Invades Ukraineand a slowing US economy can only strengthen Vladimir Putin’s hand.

Unfortunately, there’s no easy way out for Powell and the Fed, and you can bet he and his advisers are floundering about what to do. However, don’t rejoice over Powell’s pain; it may be his fault and he may end up being derided for it, but it is the American people that will pay the price.

Only bad choices

Of course, that price tag is all about the bad choices Powell has to make, including doing little or nothing with the appreciation that would lead to more inflation and massive tax increases on the elite. labor. Or Powell could spark his introspection and possibly spark a recession because he waited so long to do his job.

Putin is smart enough to envision Powell Pickle in his calculations of invading Ukraine. Certainly, President Biden’s weakness is well known and most notable for the Russian dictator who watched (like all of us) Biden’s stumbling block. withdraw from Afghanistanand Daily chaos at our border.

Biden’s strange fixation to appease the progressive left of his party has made Russia rich, and Putin sees it too. Listening to AOC types, Biden has reduced oil production to the point of Europe admires Russia’s energy supplies.

Russian President Vladimir Putin speaks at his annual press conference
The US government has announced sanctions against Russian President Vladimir Putin as he continues his invasion of Ukraine.
Image of Mikhail Svetlov / Getty

All of that is just a tipping point for an autocrat who wants to expand his empire, but there’s so much more to it. Putin’s brilliant regime has made him one of the richest men in the world, bankers tell me, citing his net worth of $100 billion or more. So did he and his oligarch friends Concerned about Biden sanctions that strangely excludes restrict Russia from using SWIFT an interbank clearing system, meaning bad guys can still move money around when needed.

What seals the deal for Putin in his goal of European domination is the precarious state of the American economy. Despite some notable numbers (GDP growth and low unemployment), the Fed’s defiance of the inflation threat has left the US weak at the worst possible time.

The Fed has the dual mandate of using monetary policy (adjusting short-term interest rates and regulating the money supply through buying or selling bonds) to promote economic expansion and what is known as “price stability.” , also known as low inflation.

A gas station in Los Angeles.
Gas prices rose again as Russia invaded Ukraine.
Ringo Chiu /

There’s good reason the Fed has traditionally put price stability above everything else: What good is higher wages for the working class if they are eaten away by the cost of food and energy? high quality and whatever it takes to get through the day?

For nearly two years, Powell simply skipped the second part of his mandate. It started with the historic and necessary money printing during the pandemic to keep the markets functioning and the economy from collapsing.

But Powell didn’t stop there. He continued to print money and even applauded Biden’s progressive spending measures that made work discouraging and allow inflation to rise. He did this when it became clear that inflation was not transient and could not be explained by fixing the “supply chain”.

Long term problem

A trader works at the New York Stock Exchange.
The Dow fell more than 500 points on February 22 as Russian troops entered Ukrainian territory.
Wang Ying /

More recently, Powell has sought to put the genie back in the bottle because of inflation turned out to be a real, longstanding problem. He is tapering off money printing and signals rising rates and a squeeze of money from the economy and markets in March. But they are expected to arrive after Putin’s tanks enter Kyiv and he is ready to annex one of the biggest countries in Europe.

Get the latest information update in the Russo-Ukrainian conflict with live coverage of the Post.

Uncertainty is causing fear among investors, who have caused massive volatility in all major indexes in the last week. A nightmare scenario of stagnant inflation – high inflation caused by soaring oil prices and a recession due to higher rates needed to reduce inflation – is now on the cards.

Almost the exact schedule was leaked on Thursday, after Dow fell around 800 points, that the Fed can back down the severity of the rate hike at least until the turmoil in Russia is over and markets stabilize.

Notably, the Dow recovered, making up for all the lost points and ending the day up nearly 100 points. Behind the scenes, big investors think the Fed can now back off from significant rate hikes because Biden’s sanctions are pretty weak; Oil prices will not increase because Russia can continue to produce.

Since oil prices and therefore gas prices are a component of an inflation measure known as the Consumer Price Index, inflation is likely to be good on paper during the next CPI report in March, allowing Powell reduce the increase rate significantly.

So what good time is here to stay? Not too fast. Powell has underestimated inflation most of the year. With the US resuming oil production, why have oil prices fallen back to a more manageable $75/bbl compared to current levels above $90? That means he may have no choice but to flirt with an economic downturn as history shows that runaway inflation is almost always a sign of civil unrest.

The question many investors ask: Will Powell’s legacy be affected by the threat of inflation or a recession? I don’t know but Putin doesn’t care, that’s why his tank is in Kyiv as you read this. Putin plays Powell – and America pays the price


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