Can the Federal Reserve break the back of inflation? That question is one of paramount importance as inflation rises and stays high (so much for all that jabber about it being “transitory”). Unfortunately, it looks like the answer may be “no.”
At least, that’s the view of Goldman Sachs’ no. 2, its president, John Waldron, who questioned the independence of the Federal Reserve and its willingness to see inflation-crackdown policies through when talking to a Bloomberg reporter.
The background is this: right now, inflation is somewhere around 7 percent, which is a forty-year high. The last time inflation was this bad, during the presidency of Jimmy Carter and Ronald Reagan’s first few years, the head of the Federal Reserve at the time, Paul Volker, had to break the back of inflation by raising interest rates tremendously. Those policies did, in the end, defeat inflation, but they also led to a severe recession.
Now, it might have to do the same and, based on what he told Bloomberg, Waldron doesn’t think the Federal Reserve has the will or independence necessary to take such a course.
Speaking to that outlet, he said that he thinks that what has gone on over the past few years in terms of monetary policy has brought “into question the independence of the Fed.”
Further, Bloomberg reports that he is doubtful that the Fed has the will and strength to act as an “independent, monetary policy engine that is doing what it thinks is right and not what’s expedient.” “They have a chance here to do that,” he added, “but I am a little worried about whether they’ll stand up and do it.”
Those comments are huge, as they show that the Goldman no. 2 must be quite worried about what’s going on.
As ZeroHedge notes, “the comments represented a “rare jab” by a senior banker. Typically, megabank executives carry water for the Fed by (among other things) appearing on CNBC to proclaim that they have complete confidence in the Fed’s ability to “thread the needle”, as JPM CEO Jamie Dimon recently put it. Even Waldron’s old boss, Lloyd Blankfein, took a break from retirement to make an appearance on “Squawk Box” the other day.”
The fact that Waldron is willing to take a jab at Jerome Powell and the Federal Reserve indicates that he is quite worried about inflation. Were it a minor issue, were it one that could be papered over, he wouldn’t take the massive, potentially risky step of openly criticizing the Fed’s independence and effectiveness. As ZeroHedge noted, such comments are typically not made, bankers don’t buy the money printing hand that feeds them.
But he did so. He bit the hand, embarrassed Powell, and spoke the truth. Thus, it can likely be assumed that he sees inflation as a major threat, one that needs to be recognized and dealt with, whatever the eventual consequences.
In light of what he said about the Fed not being able to deal with the problem, that’s highly concerning.