To say that Federal Reserve Chair Jerome Powell’s Jackson Hole speech will be “closely watched” tomorrow is an understatement. Powell is trying to steer the Fed through a jaw-dropping crisis: He has been referred to the U.S. Department of Justice for a criminal investigation into the mostly baseless allegation that he made misleading remarks to Congress; and yesterday Fed governor Lisa Cook was also referred to the DOJ for alleged fraud over a pair of mortgages in which she allegedly claimed both houses were her principal residence. President Trump has called on both to resign so that he can appoint replacements who will favor his policy of lower interest rates.
Until January, this would have been regarded as madness. This year, it’s the new normal.
“I think it is no more subtle than [Powell] wakes up every day and probably goes to bed every night thinking, ‘What can I do to preserve the institution?’” Richard Clarida, who previously worked under Powell at the Fed, told the Wall Street Journal.
Wall Street analysts are signaling that all this drama contains serious risks for the bond market, the dollar, and U.S. assets generally. If Trump gets his way, and U.S. monetary policy ends up being run by people who will do what he wants—as opposed to maintaining full employment and low inflation—then expect investors to recoil.
