The Finance 202: Amid Trump's taunts, Jay Powell is mastering an inside game

Federal Reserve Board Chair Jerome Powell. (AP Photo/Jose Luis Magana)

Jay Powell may look like he’s playing possum in the face of sustained attacks from President Trump. But the Federal Reserve chairman’s public silence belies a flurry of behind-the-scenes activity as he works to shore up support for the independence of the central bank — and, by extension, his own stewardship of it — on Capitol Hill. 

That’s the takeaway from a new report by my colleague Heather Long that reveals Powell putting his seasoned insider’s savvy to work just months into his tenure. 

It’s an extracurricular assignment for the central bank chief that looks increasingly critical to his success. The president continues stepping up his criticism of Powell for raising interest rates, potentially setting him up as a fall guy if the stock market continues to tumble or the recovery goes sideways. 

And Powell’s spadework is already meeting success. Heather reports that he has “built a base of key backers on Capitol Hill. Top Republicans are supporting Powell, saying he is doing a good job in the face of withering Trump criticism.”

Some of the early reviews: 

• House Financial Services Committee Chairman Jeb Hensarling (R-Tex.): “I believe that under Chairman Powell, the Fed is generally on the right track. Chair Powell is the fourth Fed chair I’ve worked with. He’s probably been more forthcoming, more transparent and the most aggressive at making sure he has a healthy dialogue with key decision-makers on the Hill.”
• Rep. Steve Stivers (R-Ohio), a member of the House Financial Services Committee: “I’m on my third Federal Reserve chair. Chairman Powell has been the most accessible, most open Federal Reserve chair that I have seen.”
• An unnamed member of the Trump-aligned House Freedom Caucus: “Obviously interest rates and [economic] growth have been heavily discussed but the chairman’s role in those discussions has been nonexistent.”

Rep. Jeb Hensarling (R-Tex.). (AP Photo/J. Scott Applewhite)

Powell has earned the goodwill by showing up, holding 60 one-on-one visits with lawmakers from both parties and both chambers through August, the latest date his calendars are available. That’s more than triple the number of such sessions that his predecessor Janet Yellen held in her first seven months, per Reuters. 

Notably, Powell started pounding the marble on the Hill before Trump first unleashed on him, suggesting he had an idea what was coming. Or as David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings, put it to Heather: “Jay Powell knew that whatever the Fed did, they would get criticism from the president. He was ready for it.”

The Fed chair is also looking for other ways to shore up public trust in the institution, in part by opening it up to an outside review. From The Post’s story: “This would not be a Government Accountability Office audit of the Fed, including monetary policy decisions, that Sen. Rand Paul (R-Ky.) and other Fed critics have long called for. The approach is more likely to be along the lines of what the Bank of England and Bank of Canada do by occasionally inviting outside experts to review their processes, but typically not their policy calls.”

Richard Clarida, vice chairman of the Federal Reserve. (Andrew Harrer/Bloomberg)

In the meantime, amid Trump’s jawboning, Powell and his fellow Fed governors have maintained poker faces. Fed vice chairman Richard Clarida did his part Thursday as he delivered his first major policy address.

He didn’t mention Trump in his speech, and he likewise avoided directly commenting on the president when asked about his criticisms afterward. Clarida said political pressure “will in no way be a consideration as far as I’m concerned. We have a very clear mandate. The data shows up every month in terms of inflation and unemployment. And our job is to sustain what is a very healthy and robust economy right now. And that’s what I’m going to do.”

And the data, Clarida said in his speech, are pointing the Fed toward more rate hikes. “If the data come in as I expect, I believe that some further gradual adjustment in the federal-funds rate will be appropriate,” he said.

That won’t make Trump happy. But Alan Blinder, a former Fed vice chair who now teaches at Princeton, told Yahoo Finance the president’s criticism will only compel the central bankers to stick to their guns. “My guess is, if anything, those kinds of words coming out of the White House will stiffen the Fed’s back rather than have it roll over and play dead with the White House,” Blinder said.

Correction: I made an error yesterday by naming the Senate Finance Committee as the panel that would vote on Powell’s replacement as Fed chair, if the president tried to remove him. It would be the Senate Banking Committee. 

The Federal Reserve Building in Washington on Aug. 2, 2017. (Pablo Martinez Monsivais/AP)

— Third-quarter GDP looms. Wall Street expects growth to come in at 3.3 percent. NYT’s Nelson Schwartz: “That would put the gross domestic product on track for its best yearly performance since 2005. While that would represent a falloff from the white-hot pace of growth in the second quarter, the economy is doing well by just about any measure. Stimulus from Washington in the form of tax cuts and increased government spending is turbo-charging growth, but it won’t last forever… 

"Trump has not been shy about claiming credit for the strong economy, even though many trends, like falling unemployment, were firmly in place under his predecessor, Barack Obama. Still, with less than two weeks to go before the crucial midterm congressional elections, the strong growth in recent quarters will most likely be used by Republicans on the campaign trail to buttress claims that they have been good stewards of the economy.”

Business investment could be hitting a skid. “Orders to U.S. factories for big-ticket manufactured goods slowed significantly in September, while a key category that tracks business investment fell for a second straight month,” the AP’s Martin Crutsinger writes. “The recent weakness in investment orders has raised concerns about whether a growing trade war with China and stock market volatility were making businesses more cautious.”

— Tech weighs on global stocks. WSJ's Donato Paolo Mancini: “Global stocks dropped Friday, dragged lower by lackluster technology earnings in the U.S. and signaling a return to the negative mood that has dominated markets for most of the week. After Thursday’s rally on Wall Street, U.S. futures pointed to opening declines of 1% and 1.4% for the Dow Jones Industrial Average and the S&P 500, respectively. Shares in Amazon were down 10% in U.S. premarket trading, while shares in Netflix and Alphabet were each trading at least 5% lower. ‘Last night’s earnings were disappointing,' said Carsten Brzeski, chief economist at ING in Germany. 'Amazon particularly doesn’t bode well for the entire economy, casting doubts about the strength of U.S. consumption.’”

— Jobless claims rise. WSJ's Eric Morath and Sharon Nunn: “The number of Americans filing applications for new unemployment benefits rose during the first full week workers affected by Hurricane Michael could seek jobless assistance. Initial jobless claims, a proxy for layoffs across the U.S., increased by 5,000 to a seasonally adjusted 215,000 in the week ended Oct. 20, the Labor Department said Thursday. . . . Workers who were laid off due to the storm or related business closures are eligible to file for unemployment benefits, but the hurricane’s effects may have made it difficult to file claims.”

— OPEC wavers. Bloomberg News’s Javier Blas: “OPEC signaled it could cut output in 2019 due to concerns about rising oil inventories and economic uncertainty, lurching away from a pledge made just days ago to pump flat out. The cartel’s vacillations came as the sizable crude-price gains of September vanished in an October rout. If the group follows through, it could change the outlook of the oil market and reignite the ire of [Trump], who has repeatedly demanded that OPEC keep prices low.”

President Trump at the White House in Washington on Oct. 22. (Jabin Botsford/The Washington Post)

— U.S. declines talks with China. WSJ's Bob Davis and Lingling Wei: “The U.S. is refusing to resume trade negotiations with China until Beijing comes up with a concrete proposal to address Washington’s complaints about forced technology transfers and other economic issues, said officials on both sides of the Pacific. The impasse threatens to undermine a meeting between Presidents Trump and Xi Jinping scheduled for the end of November at the Group of 20 leaders summit in Buenos Aires. Both sides had hoped the gathering would ease the trade tensions. . . . 

“Negotiations have been on hold since mid-September, when the Chinese canceled a trip to Washington after the U.S. announced levies on the $200 billion of Chinese imports . . . ‘If China wants [the G-20 session] to be a meaningful meeting, we need to do the groundwork,’ a senior White House official said. ‘And if they don’t give us any information, it’s just hard to see how that becomes fruitful.’ ”

China, Japan vow to cooperate on trade.Bloomberg: "China and Japan capped a restoration of ties with agreements on everything from currency swaps to ocean rescue Friday, a thaw that comes as [Trump] seeks better trade terms with both nations. Shinzo Abe became the first Japanese prime minister to pay an official visit to China in seven years, as Asia’s two largest economies sought to play down disagreements that have hindered relations for decades. They both reiterated support for free trade and called for the early conclusion of a regional trade pact with 16 Asia-Pacific nations that doesn’t include the U.S.”

China likely to intervene against yuan’s slide. Reuters: “China is likely to use its vast currency reserves to stop any precipitous fall through the psychologically important level of 7 yuan per dollar as it could risk triggering speculation and heavy capital outflows, policy insiders said.  On Friday, the yuan hit a fresh 22-month low of 6.9647 against the dollar… Two sources involved in internal policy discussions, but who are not the final decision-makers, said that a defence of the yuan at 7 per dollar would be mounted to show investors that the authorities wouldn’t allow a runaway market.”

— Tom Barrack in the wilderness. Bloomberg’s Caleb Melby: “Helping a fading reality-TV star with no political experience capture the White House might have led to a role in the administration or made Colony [Capital, Barrack’s investment firm] a magnet for money from around the world. But mixing business and politics hasn’t worked out for Colony’s 71-year-old executive chairman. Instead, he damaged relations with the Qatari royal family, his best business partner in the Middle East, by helping orchestrate a relationship between the White House and the Saudis. Meanwhile, Colony hemorrhaged talent, raised only half the debt fund’s target, and entered into an ill-fated merger. Its shares have fallen about 60 percent since Trump’s inauguration, even as U.S. market indexes have risen more than 20 percent.”

— Energy deals dominate Saudi conference. Reuters’s Rania El Gamal and Katie Paul: “Saudi Arabia’s investment forum was designed to showcase the kingdom’s new future away from oil, but it was black gold and old allies that rescued this week’s event from the furor over the killing of journalist Jamal Khashoggi. Riyadh inked multi-billion dollar agreements, mainly energy deals, despite a boycott of the event by dozens of high-level Western politicians, bankers and top executives scheduled to speak at the three-day gathering that ended on Thursday. … 

“Saudi Arabia signed 25 agreements on Tuesday worth more than $55 billion in the energy, petrochemicals, infrastructure and transportation sectors. Out of the total, state oil giant Saudi Aramco alone signed memoranda of understanding worth $34 billion with some of its key longtime partners such as France’s Total, and international service companies Schlumberger, Halliburton and Baker Hughes.”

— Investors expect limited impact on Saudi economy.Bloomberg News's Netty Idayu Ismail, Filipe Pacheco and Selcuk Gokoluk: “The furor over the murder of Saudi columnist Jamal Khashoggi may soon be seen as little more than a blip for the kingdom’s battered markets, according to investors. . . . ‘It will probably create some negative headlines but at the end of the day, people will forget after a while and it will have minimum impact on Saudi Arabia’s economic activities and also the credit quality,’ said Carl Wong, a senior money manager at Hong Kong-based Nexus Investment Advisors Ltd., which oversees $490 million. Saudi Arabia’s bonds and stocks were caught in the crossfire of a diplomatic flareup as government leaders around the world rejected the kingdom’s initial attempts to distance itself from Khashoggi’s disappearance, prompting the Arab state to finally admit he died at the consulate . . . But the outflow is temporary, investors say.”

A defiant message delivered by Saudi Arabia’s crown prince to investors gathered in Riyadh may not be enough to repair the damage inflicted to his global standing as he faces continued international pressure over the killing of Saudi journalist Jamal Khashoggi.

The Twitter logo outside the company’s headquarters in San Francisco on Feb. 8. (David Paul Morris/Bloomberg News)

— Google has fired 48 people for sexual misconduct.The Post’s Brian Fung: "Google chief executive Sundar Pichai said the company is 'dead serious' about dealing with allegations of sexual harassment and misconduct in an internal memo sent to employees on Thursday and obtained by The Washington Post. As many as 48 people have been fired from Google over sexual harassment allegations over the past two years, Pichai said, 13 of whom were senior managers and above. 'None of these individuals received an exit package,’ he wrote in the memo, which was co-signed by Eileen Naughton, vice president of people operations. The memo comes after the New York Times reported Thursday that Google paid Andy Rubin, the creator of the Android mobile operating system, $90 million after he left the company in 2014 over an allegation of sexual misconduct.”

— Twitter beats expectations. The Post’s Taylor Telford: “Twitter beat Wall Street expectations Thursday with revenue growth up 29 percent from the same period last year, despite a big drop in monthly users. The company reported $758 million in revenue, well above analysts’ estimates of $703 million. . . . Much of the growth in revenue came from advertising, which was up 29 percent from last year at $650 million. . . . But the company reported a loss of 9 million monthly users during the third quarter, down to 326 million monthly active users from 335 million during the previous quarters . . . Twitter executives stressed during a call to investors Thursday that the company’s purpose is to ‘serve public conversation’ and that it is prioritizing ‘health’ over growing users.”

— BlackRock plans Atlanta expansion. WSJ’s Dawn Lim: “BlackRock Inc. expects to boost the number of its employees working in Atlanta to 1,000 people by 2024 . . . It has roughly 15 there now. The firm expects to receive roughly $25 million in public tax breaks as part of that Southern expansion . . . The push could make Atlanta BlackRock’s third largest hub after New York and San Francisco, which have roughly 3,500 and 1,500 people now . . . BlackRock joins other money managers in setting up hubs far from Wall Street to capture technology talent, ramp up client marketing, and reduce business costs. Many face heightened competition for clients and investment returns . . . BlackRock is looking to bulk up its technology services revenue and rely more on algorithms in its investing.”

— U.S. halted JPMorgan’s growth for years. Bloomberg’s Michelle Davis: “For almost six years, Washington secretly shackled JPMorgan Chase & Co., the nation’s biggest bank. Now the chains are off, thanks to bank-friendly regulators in the Trump administration. In actions never before made public, Obama administration regulators prevented the bank from opening branches in new states as punishment for violating banking rules, according to people familiar with the matter. JPMorgan’s ambitious plan to expand nationally, announced earlier this year, was made possible by the Trump administration’s rollback of those restraints, which date from 2012, said the people, who asked not to be identified discussing regulators’ impact on the bank’s plans… Privately, the U.S. Office of the Comptroller of the Currency stopped JPMorgan from expanding into additional states while resolving compliance breakdowns as part of an unwritten regulatory policy, the people said.”

— State bank regulators sue to stop fintech charters. Reuters: “A body of U.S. state banking regulators on Thursday sued the federal government to void its decision to award national bank charters to online lenders and payment companies, saying it was unconstitutional and puts consumers and taxpayers at risk. The Conference of State Bank Supervisors said it had filed a complaint in the U.S. District Court for the District of Columbia against the Office of the Comptroller of the Currency over its plan, announced in July, to issue bank charters to financial technology firms.”

— The Trump Discount. Bloomberg Opinion’s Stephen Gandel argues the Trump Bump has inverted, since “the S&P 500 Index is now 6.5 percent cheaper than it was before Trump was elected president, with the gauge trading at 15.7 times next year’s expected earnings, down from just under 17 in early November 2016. From inauguration day, stock-market valuations are down a little more than 9 percent. By comparison, they rose 16 percent in Barack Obama’s first two years in office.”

U.S. Pacific Islands devastated by Super Typhoon Yutu:

Megyn Kelly’s rocky two years at NBC:

French “Spiderman” climbs London’s Heron Tower:

This content was originally published here.

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