“We’re starting off in a pretty shaky world economically,” Yiming Ma, a finance professor at Columbia Business School, told me.
The chief reason is inflation, which is rising at the fastest clip in three decades.
Powell now has to decide the pace at which the Fed removes crisis measures designed to stimulate the economy during Covid-19 lockdowns. It’s a delicate process. Wait too long to act, and controlling inflation becomes much harder. Move too soon, and he risks jeopardizing the recovery in employment.
“In some sense, you could argue that the timing of tightening policy — how fast and how far you tighten — is a way more difficult decision than the decision to ease policy, especially when you were confronted with a pandemic in which you break out the emergency playbook,” Deutsche Bank senior US economist Brett Ryan told me.
The Fed has already laid out a schedule for rolling back purchases of bonds, one of the key tools it used to ease access to credit during the pandemic. The big question now is how soon it will raise interest rates.
“The pace and the timing of this rate hike cycle will be very important in the first two years of this new term,” Ma said.
“He’s going to be dealing with a whole new suite of people,” Ryan said.
The political environment has changed, too. Congress granted Powell enormous leeway to act in 2020. This time around, he could face closer scrutiny, especially given that inflation may be a contentious subject ahead of the 2022 midterm elections.
The Fed’s approach to dealing with the climate crisis and economic inequality is also generating greater attention, as central banks around the world debate whether they can, or should, use monetary policy to intervene on these issues.
Climate risks and inequality “will be more in the conversation,” Columbia’s Ma said. “In terms of how much that translates into actual policies … I think there’s a bit more uncertainty there.”
Biden will release crude from strategic reserves
The latest: The White House said that it was coordinating with China, India, Japan, South Korea and the United Kingdom, amplifying the impact of the move.
US oil prices were last down 0.4%, trading at roughly $76 per barrel.
The prospect of the United States and other nations releasing emergency barrels had already helped to lower oil prices. After topping $85 a barrel in late October, US oil prices have declined about 10%.
That in turn has helped put a lid on surging gasoline prices, which have become a political problem for President Joe Biden. The national average is $3.40 a gallon, a hair lower than a week ago, according to AAA.
“We must use all tools at our disposal to bring down gasoline prices in the short term,” House members led by California Rep. Ro Khanna said in a letter on Monday.
Step back: Machinations by the White House could help bring energy prices down in the short term and lend some immediate relief. But longer term, under-investment in oil production is expected to keep prices elevated.
Rivian’s soaring shares hit a speed bump
Shares of electric vehicle maker Rivian have soared to unbelievable heights since the company made its Wall Street debut earlier this month. But they’re not invincible.
Remember: Rivian has generated immense hype even though it has yet to report any revenue from sales of its electric trucks. The company is now valued at nearly $101 billion, roughly $19 billion more than Ford.
Also today: The Purchasing Managers’ Index for the United States arrives at 9:45 a.m. ET.
Coming tomorrow: A whole lot of US economic data before the Thanksgiving holiday. Watch for details on new home sales and inflation, as well as the minutes from the latest meeting of the Federal Reserve.