Inflation's main culprit?  CEOs zero in on Powell's Fed

Inflation’s main culprit? CEOs zero in on Powell’s Fed

Instead, executives are focused on what they see as Powell getting the persistence and scope of inflation so wrong that he and his Fed colleagues are now being forced to overcompensate on rate increases that could blow the economy into a sharp slump.

“He is obviously playing catch-up, 100 percent,” said Gary Cohn, the former president of Goldman Sachs who served as a top economic adviser to President Donald Trump and is in regular contact with many of the world’s top executives. “He was clearly behind the curve and clearly late, and the runway for a ‘soft landing’ for the economy is now much shorter and narrower.”

Corporate trust in the Fed matters because the level of confidence can drive hiring and spending decisions, just as it affects consumer behavior. A Conference Board survey this week showed CEO confidence in the second quarter dropped for the fourth straight time and is at its lowest level since the onset of the pandemic. Big banks like Wells Fargo are downgrading their views on the economy and increasing recessions.

The sliding faith in Powell also marks another low in the relationship between the business world and Washington. Corporate donors have long showered politicians with cash, more of it going to Republicans. Now, top executives are casting doubt on both lawmakers and even the most trusted Washington institutions, including the Fed. That could cause them to tighten their money spigots as the midterm elections approach, with the executives doubting that anyone has a plan to battle inflation without crushing the economy.

“Recession is basically a loss of faith by consumers who think they may lose their jobs and CEOs who think they are not going to be able to sell what they produce,” said Mark Zandi, chief economist at Moody’s Analytics, who thinks the latest Fed rate hike was excessive. “Unhappy CEOs worried about the future will cut back spending plans, and that leads to recession.”

In recent weeks, several big-name executives — including JPMorganChase CEO Jamie Dimon, Tesla CEO Elon Musk and billionaire investor Carl Icahn — have issued urgent-sounding statements warning of impending recessions and layoffs. Another CEO of a large Wall Street company said “the Fed was late coming to the rate increase party” and “they should have been raising rates earlier in order to give themselves more flexibility.”

Still another top executive told POLITICO that the Fed was blowing it on inflation but also laid fault on the White House. “The Fed is obviously way behind, but the Treasury team and the White House economic staff don’t seem to be giving Powell much help by coming up with a clear set of plans to tame inflation,” said the executive, who requested that he not be identified.

Said a senior executive at another large Wall Street bank: “A lot of what happened, at least this year, was unknowable and they had to somehow try and balance things perfectly, and that’s just an impossible task. But the way many executives see it, there were other opportunities to move earlier and be in a better position right now, and obviously Powell and the Fed just did not get it right.”

To be certain, some executives have sympathy for Powell and the exquisitely tough position the Fed is in, with Russia’s war in Ukraine sending fuel and food prices skyrocketing and China’s latest Covid-19 crackdown exacerbating supply chain snags.

Indeed, in recent years the central bank did try to tighten monetary policy to what Powell called more normal levels, but then Covid hit and prompted a return to near-zero emergency rates. But many criticize him for not moving more aggressively to raise rates and otherwise tighten policy late last year as the economy was clearly heating up and before Russia’s invasion and China’s lockdowns lit a fresh rocket under already soaring prices.

Powell is not alone among Washington’s power players in drawing disdain from many top executives.

Biden’s big-spending policies, shifting messages on the economy and tendency to blame corporate price gouging for inflation also enrage many in the C-Suite. Executives say the White House should act faster to boost domestic energy production and drop trade barriers, including tariffs.

But the president doesn’t control monetary policy, and that’s the main tool to combat inflation. So more of the blame flows to Powell.

Powell himself fended off claims of a supposed drop in confidence in the Fed during his press conference on Wednesday, while acknowledging how vital that faith is.

“We think that the public generally sees us as very likely to be successful in getting inflation down to 2 percent and that’s critical,” he said. “It’s absolutely key to the whole thing that we sustain that confidence. So that’s how we’re thinking about it.”

Biden, for his part, said in remarks Thursday to the AP that he did not believe a recession was inevitable. But he acknowledged that people are “really, really down” in the wake of Covid, inflation and other disturbances and said he hoped to restore confidence.

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