• Market Crumbs

Powell Defends Fed Policy

Image via Random Sky on Unsplash

Federal Reserve Chairman Jerome Powell said during his post-FOMC news conference on Wednesday that "Inequality is something that has been with us increasingly for more than four decades, it's not really related to monetary policy."

This isn't the first time Powell has denied that the Fed's policies increase inequality. Last month, when asked if the Fed's recent actions amidst the coronavirus will increase inequality, Powell replied "absolutely not."

Powell defended the Fed's actions, saying "Everything we do is focused on creating an environment in which those people will have their best chance to keep their job, or get a new job, or maybe go back to their old job if they've been furloughed."

While the Fed's policies certainly enable companies to continue to provide people jobs, it hasn't entirely stopped them from buying back stock or issuing dividends while they announce layoffs.

The argument over the Fed's policies on inequality isn't new. It's hard to argue that the many Americans having no exposure to the stock market haven't benefited as much as those who do over the years.

Since the outbreak of the coronavirus, the Fed's actions have certainly benefitted the stock market, which has recovered most of its losses. Even the tech-heavy Nasdaq hit fresh all-time highs as recently as this week.

One vocal critic who disagrees with Powell's assessment is none other than the former head of the FDIC during the financial crisisShelia Bair. Bair criticized the Fed's low interest rate policy, saying that it does nothing more than benefit asset prices and "doesn’t really trickle down to labor markets."

"I think it would be good for the Fed to acknowledge that and try to find better ways to use their tools in a way that doesn’t exacerbate the problem," Bair said. "If they’re going to heat up the printing press, where is the money going now? It’s going into financial markets, benefitting banks and large corporations that use the bond markets to fund themselves."

Bair has an interesting solution, saying "If they’re going to print money, print it and send it directly to households."

While the likelihood of the Fed ever admitting it is exacerbating inequality, let alone taking actions to help stop it, is slim, perhaps former New York Fed President William Dudley said it best, when he said "The Fed's tools are just not suited to address the inequality problem."

Leftover Crumbs

  • Jobless claims continue to decline. Initial jobless claims continued to decline, although still totaled 1.54 million last week, according to the Department of Labor. Last week represented the 10th-consecutive weekly decline in jobless claims. Continuing claims dropped by 339,000 to 20.9 million.

  • Amazon faces EU antitrust charges. The European Union is reportedly preparing to file antitrust charges against Amazon for its use of third-party seller data. The charges, which could be filed next week, relate to Amazon's use of the data to compete against third-party sellers. The EU has reportedly been investigating the matter for nearly two years, and it could be another year before the EU determines if Amazon broke the law. If found guilty, Amazon could potentially pay a fine of as much as 10% of its annual revenue.

  • $10 trillion. IMF Managing Director Kristalina Georgieva wrote in a blog post that global fiscal stimulus has so far totaled about $10 trillion. Georgieva said as many as 100 million people could be pushed into extreme poverty as a result of the coronavirus. Georgieva said further stimulus should be focused on promoting a more inclusive recovery through health care, education, climate protections and providing low-income households and small businesses access to financial products and technology.

  • Grubhub finds a buyer. After talks with Uber broke down over regulatory concerns, Just Eat Takeaway has agreed to acquire Grubhub for $7.3 billion in an all-stock deal. The combined company will have more than 70 million active customers globally. Just Eat Takeaway founder and CEO Jitse Groen will lead the combined company, while Grubhub founder and CEO Matt Maloney will join the board and oversee North American operations.

  • There's more than profits. Contrary to Milton Friedman, who argued the social responsibility of corporations is to increase profits, hedge fund manager Paul Tudor Jones argues companies can no longer focus only on profits. "When you just look and say that the only thing that a company has to worry about is making a profit, it gives that company a pass not to pay attention to pay equity, not to pay attention to gender equity, not to pay attention to racial equality," Jones said.