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 offset interest rate hikes that could send the economy into a sharp slump.
“He’s obviously trying to catch up, 100 percent,” said Gary Cohn, a former chairman of Goldman Sachs who served as President Donald Trump’s top economic adviser and is in regular contact with many of the world’s top executives. “He was clearly behind the curve and clearly behind, and the runway for a ‘soft landing’ for the economy is now much shorter and narrower.”
Corporate trust in the Fed is important because the level of trust can drive hiring and spending decisions, as well as affect consumer behavior. A Conference Board survey this week showed that CEO confidence in the second quarter fell for the fourth time in a row and is at its lowest level since the start of the pandemic. Big banks like Wells Fargo are downgrading their views on the economy and raising recession warnings.
Trust in Powell also marks another low point in the relationship between the business world and Washington. Corporate donors have long showered politicians with money, rather than going to Republicans. Now, top executives are casting doubt on lawmakers and even Washington’s most trusted institutions, including the Fed. That could lead to them tightening the money taps as midterm elections approach, with executives doubting anyone has a plan to fight inflation without crushing the economy.
“The recession is basically a loss of faith on the part of consumers who think they might lose their jobs and CEOs who think they won’t be able to sell what they produce,” said Mark Zandi, chief economist at Moody’s Analytics, who believes the latter Fed rate hike was excessive. “Unhappy, forward-looking CEOs will cut spending plans, and that leads to recession.”
In recent weeks, several high-profile executives — including JPMorganChase CEO Jamie Dimon, Tesla CEO Elon Musk and billionaire investor Carl Icahn — have issued urgent statements warning of impending recessions and layoffs. Another CEO of a major Wall Street firm said that “the Fed was late for the rate hike party” and “they should have raised rates sooner to have more flexibility.”
Yet another top executive told POLITICO that the Fed was screwing up inflation, but also blamed the White House. “The Fed is obviously long overdue, but the Treasury team and the White House economic team don’t seem to be giving Powell much help in coming up with a clear set of plans to tame inflation,” said the executive, who urged him not to be identified.
Said a senior executive at another major Wall Street bank: “A lot of what happened, at least this year, was unknowable and they had to somehow try to balance things out perfectly, and that’s an impossible task. But the way many executives see it, there were other opportunities to move earlier and be in a better position now, and obviously Powell and the Fed just didn’t get it right.”
To be sure, some executives have sympathy for Powell and the extremely difficult position the Fed is in, with Russia’s war on Ukraine pushing up fuel and food prices and China’s latest Covid-19 crackdown exacerbating the economy’s woes. supply chain.
Indeed, in recent years, the central bank has tried to tighten monetary policy to what Powell called more normal levels, but then Covid hit and led to a return to near-zero emergency rates. But many criticize him for not moving more aggressively to raise rates and tighten policy late last year, when the economy was clearly heating up and before Russia’s invasion and China’s lockdowns ignited a new rocket under prices. already on the rise.
Powell is not alone among Washington’s powerhouses in attracting the scorn of many top executives.
Biden’s big spending policies, changing messages about the economy and a tendency to blame corporate prices for inflation also infuriate many in the C-Suite. Executives say the White House must act faster to increase domestic energy production and break down trade barriers, including tariffs.
But the president does not control monetary policy, and that is the main tool to fight inflation. So more guilt flows to Powell.
Powell himself refuted allegations of an alleged drop in confidence in the Fed during his Wednesday news conference, acknowledging how vital that faith is.
“We think the public generally sees us as very likely to succeed in bringing inflation down to 2% and that’s critical,” he said. “It is absolutely fundamental to everything that we maintain that trust. So that’s how we’re thinking.”
Biden, for his part, said in comments Thursday to the AP that he did not believe a recession was inevitable. But he acknowledged that people are “very, very depressed” after Covid, inflation and other disturbances and said he hopes to restore confidence.