JP Sits Down With Powell in Jackson Hole (No, Not Really)

My first memory of John McCain was the 2004 national election, which is odd because he didn’t play a critical role. He wasn’t running for president and he publicly supported the Republican incumbent, George Bush, commending the president for his handling of the war on terror. Pretty typical stuff.

Rumors had swirled that Democratic nominee John Kerry might ask McCain to join the ticket as the vice president nominee. McCain dismissed the rumors and said he would have turned down the invitation if it had even been extended.

But during that year, a smear campaign against Kerry, gained widespread attention – you probably remember it as swiftboating. I certainly do. These were baseless attacks on Kerry’s Vietnam service record.

McCain condemned the movement, “I think the ad is dishonest and dishonorable. As it is, none of these individuals served on the boat he commanded. Many of his crew have testified to his courage under fire. I think John Kerry served honorably in Vietnam.” McCain continued, “I think the Bush campaign should specifically condemn the ad.” The Bush campaign declined.

His comments struck me at the time because he was willing to stand up for a fellow veteran in the face of blowback from his own party. But because he wasn’t running, there wasn’t really that much at stake.

That changed on October 10, 2008, during the final presidential debate between McCain and Obama. McCain was trailing by a sizable margin, double digits according to some polls. McCain had proposed suspending the campaigning and debate schedule to deal with the financial bailout. Many observers, including yours truly, thought it was a publicity stunt to avoid getting drilled by Obama in a forum that favored the future president’s abilities.

During that debate, a 75 year old McCain supporter took the microphone and said she did not trust Obama because “he’s an Arab.” McCain cut the woman off, “No m’am. He’s a decent family man, citizen, that I just happen to have disagreements with on fundamental issues.”

McCain could have seized on the growing anti-Obama momentum. He could have avoided directly contradicting her, implicitly allowing supporters with that belief to continue believing it. But he didn’t. In the face of a potential loss, he still did what he believed was the right thing to do.

I disagreed with McCain on many issues, but I never doubted his motives. He did what he thought was best for the country, even at his own personal expense. How many of our politicians today are willing to do the same? I’m not going to mention any names Mitch McConnel and Paul Ryan.

How many are willing to voice their true beliefs at their own expense? Like McCain strived to do, can we disagree with each other without smearing each other?

And for the last time – if you avoided the draft due to bone spurs that haven’t slowed down your ability to play golf, you don’t get to criticize a man that volunteered for combat duty, spent five years as POW (refusing to be released before his men despite constant torture), earned a Silver Star, a Bronze Star, and three Purple Hearts, and ultimately served for more than 20 years before retiring from active duty service to enter three decades of public service. You just don’t.

Here’s to hoping there are more John McCains coming our way, whether I agree with them or not on fundamental issues. Country over party doesn’t have to be a meme.

Last Week This Morning

• The 10T steadily grinded lower all week to 2.81%
  • German bund climbed to 0.34%
• 2 year Treasury unchanged at 2.62%
• LIBOR at 2.065%
  • LIBOR should start to climb this week as we get within the one month window of the next FOMC meeting (September 26th)
  • LIBOR should be around 2.30% by this time next month
• SOFR at 1.94%
• Yield curve steepness is now just 0.19% and I’m sure this time will be different because it always is, right?
• Did anything happen at the WH? I looked the other way for a second…
• Jackson Hole
  • Powell said gradual increases will remain appropriate
  • He is not worried about the economy overheating with inflation so low
  • More aggressive rate hikes are not on the table unless inflation expectations jump
    • This is critical for floating rate borrowers
  • Stocks notched the longest bull run in history

Jackson Hole

I had the good fortune of hypothetically catching up with FOMC Chairman Powell at Jackson Hole this weekend. Below is a lightly edited and totally fictional transcript of the discussion.

JP: “Chairman Powell, thank you for your time today. This is your first Jackson Hole symposium – tell me about it.”

Powell: “The economy is doing great and that makes it easy to speak at events like this. I only wish I could I could have landed a few more trout this morning. You really put me to shame out there!”

JP: “Aw, shucks, look at us, we’re being chummy, Chairman. Would it be weird if I told you I have a poster of you hanging in my room next to my Carson Wentz poster?”

Powell: “Please, call me Jay. But back to your question…I genuinely enjoy gathering at events like this to discuss monetary policy with other central bank officials. We’re all committed to a finding the right balance of monetary policy and coordination to ensure stability and stable growth.”

JP: “Still…labor market questions linger. Unemployment has dropped from 5.3% to 3.8%, and yet wage growth seems persistently weak.”

Powell: “”I’ve seen numbers of 24 percent—I actually saw a number of 42 percent unemployment. Forty-two percent. 5.3 percent unemployment—that is the biggest joke there is in this country.…The unemployment rate is probably 20 percent, but I will tell you, you have some great economists that will tell you it’s a 30, 32. And the highest I’ve heard so far is 42 percent.”

JP: “You think…unemployment could be as high as 42%? But it’s a fact that the unemployment rate is 3.9%”

Powell: “Alternative facts.”

JP: “OK…you spent a lot of time Friday talking about neutral rates and your long term objective of an equilibrium rate. Where do you stand in that process?”

Powell: “We’re well on our way. As you know, we’ll hike in September, pushing the upper bound of Fed Funds to 2.25%. We believe the new neutral rate to be somewhere around 2.50%, so obviously one more hike after that and we should be there.”

JP: “So you’ll stop hiking after September?”

Powell: “No.”

JP: “Ok…can you expand on that?”

Powell: “I think I’ve made a lot of sacrifices. I work very, very hard.”

JP: “I apologize, but I don’t understand.” (Editor’s note: JP is exceedingly polite during pretend interviews).

Powell: “SAD!”

JP: “Let’s shift gears…President Trump has really shaped this FOMC for years to come. He recently nominated Richard Clarida as your deputy. Clarida is a very highly regarded economist that has written extensively on the new lower neutral rate following the 2008 crisis. In 2014, he published a paper suggesting this new rate is closer to 2%, rather than the 4% from pre-crisis. How will that help shape your view on additional rate hikes going forward?”

Powell: “You know the only reason I gave him the job. Because I felt loyalty, he was an original supporter. He was on the campaign.”

JP: “But you didn’t campaign. You were appointed. And Richard was appointed by President Trump, too.”

Powell: “I don’t know, I haven’t investigated that, no reason to dispute that, no reason to dispute his recollection. I like Richard a lot, you like Richard a lot. I feel very bad he’s been victimized like this. The president feels even worse.”

JP: “I’m confused…but you enjoying working with an economist as highly regarded as Richard?”

Powell: “The guy is unethical, he’s a scumbag, he’s a horrible person.”

JP: “….”

Powell: “He’s scared stiff and missing in action.”

JP: “You’ve been given a lot of credit for using plain language in your Q&A sessions rather than the traditional Fed-speak. Do you feel it’s important to convey complex monetary policy ideas to the public in more simple terms?”

Powell: “So many people at the higher ends of intelligence loved my press conference.”

JP: “Well, the New York Times published a piece…”

Powell: “”They don’t write good. They have people over there, like Maggie Haberman and others, they don’t—they don’t write good. They don’t know how to write good.”

JP: “What…”

Powell: “That makes me smart.” (burps loudly)

Powell: “Excuse me.”

JP: “No problem, lots of bubbles in that La Croix.”

Powell: “I have the absolute right to pardon myself. That’s what I just did there. I pardoned myself. I’m pointing it out in case you missed it.”

JP: “I guess you do…unfortunately. Can we spend a few minutes talking about trade wars and how they could impact monetary policy?”

Powell: “Trade wars are good and easy to win.”

JP: “You can’t really believe that, right?”

Powell: “Nobody knows more about trade than me.”

JP: “Then please tell me why trade wars are good.”

Powell: “We’ve accumulated more than 12 Trillion Dollars of trade deficits! Last year we had a trade deficit of almost 800 Billion Dollars.”

JP: “That’s not true.”

Powell: “Truth isn’t truth.”

JP: (facepalm emoji)

Powell: “I love free trade. I love the concept of free trade. Everything about it is good. I went to the Wharton School of Finance. They say, ‘Let’s go free trade.’”

JP: “OK, then how do you explain your recent position on trade wars?”

Powell: “Free trade is terrible. Free trade can be wonderful if you have smart people. But we have stupid people.”

JP: “So who are you speaking with to ensure you aren’t taking input from stupid people?”

Powell: “I’m speaking with myself, number one, because I have a very good brain and I’ve said a lot of things.”

JP: “And your conclusion, after consulting with yourself, is that trade wars are good?”

Powell: “When countries send us their products, they’re not sending their best. They’re sending products that have lots of problems and they’re bringing their problems with them. They’re bringing drugs. They’re bringing crime. And some, I assume, are good products.”

JP: “So what do you propose?”

Powell: “We’re going to build a wall and they will pay for it.”

JP: “You think building a wall around the US will help us win trade wars?”

Powell: “I will build a great wall—and nobody builds walls better than me, believe me—and I’ll build them very inexpensively. I will build a great, great wall on our borders, and I will make them pay for that wall. Mark my words.”

JP: “I’m almost afraid to ask…but what are your thoughts on tariffs?”

Powell: “Tariffs are the greatest!”

JP: “Thought so…Let’s turn our attention back to rate hikes. The Fed has hiked twice since you took office and appears poised for possibly two more hikes this year.”

Powell: “Not true. I was not aware of the rate hikes.”

JP: “But you released a statement. You were on tv and everything.”

Powell: “No, no. I didn’t know about the hikes until later. Later on I knew. Later on.”

JP: “Ok…you’ve worked hard to build consensus among FOMC voters. Do you strive for a unanimous vote at each meeting?”

Powell: “I own this FOMC. I own these voters. I could stand in the middle of Fifth Avenue and shoot people and I wouldn’t lose voters.”

JP: “That feels like one of those statements that I think is absurd in the moment and then as time passes I start to think it might just be true…Let’s talk about QE. The Fed’s balance sheet ballooned in the years following the crisis, up to $4.5 trillion. How do you plan on managing the balance sheet normalization process in the coming years?”

Powell: “I am the king of debt. I’m great with debt. Nobody knows debt better than me. If things don’t work out, I renegotiate the debt.”

JP: “How do you renegotiate the debt of the United States?”

Powell: “You go back and you say, hey guess what, the economy crashed. I’m going to give you back half.”

Hillary: “JP, do you mind if I jump in here? That could cause an economic catastrophe, and it would break 225 years of ironclad trust that the American economy has with Americans and with the rest of the world. Alexander Hamilton would be rolling in his grave. You see, we pay our debts.”

Powell: “Crooked Hillary! Nobody knows Crooked Hillary better than me!”

JP: “You keep using the phrase, ‘Nobody knows better than me.’ What else do you know better than anyone else?”

Powell: “Taxes. Banking. Renewables. Coal. Jobs. Money. US government. Campaign contributions. Politicians. Flippers. Infrastructure. Military. ISIS. Visas. Being Presidential.”

JP: “I’m glad I condensed that into one question. You should run for president.”

Powell: “I would make the greatest president ever. Believe me.”

JP: “Would you release your tax returns if you run for president?”

Powell: “I’ll produce my tax returns, absolutely. And I would love to do that.”

JP: “Hopefully we never need to test that…Lastly, and while I would like to think we’ve grown close over the last few days, I’m not a Fox anchor and I need to ask some real questions. Your FOMC has been under investigation by a Special Counsel and I wanted…”

Powell: “WITCH HUNT! Hoax. No collusion. No obstruction. The appointment of special counsel is totally unconstitutional.”

JP: “Your personal lawyer and self-described ‘fixer’ plead guilty on Friday to numerous federal crimes. Does having someone so close to you plead guilty to tax evasion and fraud worry you?”

Powell: “He was somebody that was probably with me for about 10 years and I would see him sometimes. Didn’t do big deals, did small deals. Not somebody that was with me that much.”

JP: “What about your campaign manager being found guilty on eight felony counts?”

Powell: “He wasn’t with me that long.”

JP: “And his deputy campaign manager? Or the Special Counsel granting immunity to your Chief Investment Officer? Or immunity to a close friend that runs a newspaper? Or your National Security Advisor going to jail?”

Powell: “Michael Flynn is a very good person. Very good person.”

JP: “So none of this has you the least bit worried about impeachment?”

Powell: “I don’t know how you can impeach somebody who’s done a great job. I tell you what, if I ever got impeached, I think the market would crash, I think everybody would be very poor.”

JP: “But still, this investigation…”

Powell: “The most corrupt investigation I have ever seen. If it isn’t over by September, then we have a very, very serious violation of the Justice Department rules, and he shouldn’t be conducting one of these investigations in the 30-day period.”

JP: “So you believe this investigation needs to conclude before the next FOMC meeting?”

Powell: “We can’t find an incriminating anything, and we need a basis for this investigation. This has been dragging on for 15 months. That’s entirely too long.”

JP: “Didn’t the Ken Star investigation last over four years?”

Powell: “And did he find Hillary’s 33,000 emails?!”

“Like I’ve explained repeatedly, he did nothing wrong. No obstruction. No collusion. He did nothing wrong. As I’ve said, he did nothing wrong. I’ve addressed this and he did nothing wrong. He did nothing wrong.”

JP: “Sarah Huckabee Sanders?”

SHS: “He did nothing wrong. No charges. No obstruction. No collusion. And if there was, collusion’s not illegal. But he didn’t collude. He did nothing wrong. I’ve addressed this numerous times.”

JP: “But have you really? Or do you just keep repeating the same thing? Either way, we’re almost out of time and I’d like to end this on a slightly lighter note. Jay – How do you feel after six months on the job?”

Powell: “I give myself an A-plus.”

JP: “Do you attribute any of your success to your predecessor, Janet Yellen? Did she hand you an economy on an upward…”

Powell: “Nobody respects women more than me.”

JP: “Right, ok, but how do you feel she did…”

Powell: “Such a nasty woman.”

JP: “But did she wait too long to hike rates in your opinion?”

Powell: “I think that’s a ridiculous accusation.”

JP: “It was more of a question than an accusation.”

Powell: “Yellen wiretapped me. And I’m not even sure she was born in the United States.”

JP: “You think Janet Yellen personally broke into your office and wiretapped your phones? Like Jason Bourne style?”

Powell: “You could see there was blood coming out of her eyes, blood coming out of her…whatever.”

JP: “So you think Janet did a poor job during her tenure at the helm of the Fed?”

Powell: “Crooked Janet – Lock her up! Lock her up! They love chanting that at my FOMC meetings. It’s fun – try it.”

JP: “Doesn’t it seem ironic that you are chanting lock her up at the very same moment so many people close to you are going to jail?”

Powell: “Janet Yellen is the most corrupt person ever to seek the office of the FOMC presidency.”

JP: “Really? That’s what you’re going with right now? Do you think the GOP response would be the same if Janet’s personal attorney, campaign manager, deputy campaign manager, National Security Advisor, and foreign policy advisor all went to jail within two years of her being elected?”

Powell: “LOCK HER UP!”

JP: “I wish John McCain were here. He would know what to say…”

This Week

My apologies to Jay Powell, who I really like and have been impressed with thus far. Jaybone – if you’re reading this, I was just kidding! Let’s go fly fishing!

Lots of data this week, kicking off with Chicago and Dallas Fed Activity on Monday. Wednesday’s GDP and Core PCE will be the headliners.