Fed Chair Jerome Powell appeared on Capitol Hill Wednesday testifying before the Senate Banking Committee, a week after overseeing the biggest interest rate hike in 28 years. Powell was grilled by senators as inflation continues to put pressure on nearly every aspect of Americans' lives.

Opening Bell

Fed Chair Powell Grilled by Lawmakers

for more on this. We're speaking with Michael jones Chairman and Ceo at Caravelle concepts. Thank you so much for being here first here. What were some of your biggest takeaways from jay Powell's testimony yesterday? Well my primary concern is I listened to Chairman Powell is that he doesn't seem to have a strong vision of how we got into this inflationary mess. Which makes me worry that he won't have a strong vision of when we are exiting from this inflationary mess and he can stop tightening. Yeah. At the end of the day we have an inflation problem because in the spring of 2020 the Fed printed $5 trillion and injected it into an economy that was certain to be facing shortages because of the global covid shutdown. Now for the next 18 months after they did that the Fed got unmistakable signals that they printed too much and we're keeping interest rates too low you saw money supply growth hit 30% stock market and home prices skyrocketing in the middle of a global recession. Speculative investments like Bitcoin and A. M. C. Going through the roof. These were all signals that the Fed had done too much and yet they ignored them and kept printing money and keeping rates at zero because backward looking inflation statistics continue to look good. Look at yesterday's testimony. Still a primary focus on backward looking inflation statistics which you know if you drive looking in the rear view mirror the Fed could run us off a cliff again but in the opposite direction. So interesting especially because we just discussed this that there has been an undermining really of the Feds credibility to be able to handle this crisis moving forward. So it sounds like you don't believe that the Fed has the correct tools to address this concern when it comes to inflation. I think they have the correct tools. It's that they don't have the correct indicators. So it's as if, you know, they're very focused on the speedometer, the inflation rate, but they're ignoring the accelerator and the brake that actually drive, um that the the the speedometer, I'll give you a, for instance, you know, lots and lots of talk about backward looking inflation statistics yesterday, But no mention of the collapse and money supply growth from 30% to 8, which is pretty close to the long term average of seven. You had no mention of the fact that the 10 year Treasury after rising dramatically and yield after every tightening move. The last tightening move, the 10 year Treasury had started falling in yield. You've seen a collapse in the speculative investments. You've seen a rollover in new home sales, which is an indicator that interest rate sensitive sectors of the economy are weakening. You know, these are the forward looking indicators and I'm not saying that the Fed has finished its fight against inflation, but the fact that they're not at all focused on the progress that their policy moves thus far have achieved. And the market's reaction to those policy moves that worries me that they're because they're looking at the wrong indicators, they're going to keep tightening until we're in a recession. Really interesting feedback. I also want to give you a little bit of a devil's advocate situation here just because we're constantly also hearing from analysts, the Fed has to take a measured approach because there are so many factors that are outside of the Fed's control. I think of things like geopolitical crisis between Russia and Ukraine that's also adding to the energy crisis and gas prices and all of those things that could actually do the Feds work for it. How do you think the Fed needs to move forward at this point to stick that soft ish landing? Do you think that's still something that the bed can do? Well, I would probably divide the inflationary problem that we have right now in two sections, I think, you know, let's say we got inflation 8 8.5%. I'd say 6% is because the Fed printed too much money and kept interest rates too low too long. I think the geopolitical crisis in Russia probably tacked another couple of percentage on on that. So if we get resolution on those issues, yes, that will improve the inflationary picture, but it's not going to ultimately solve the problem. The Fed still has to unprintable lot of the money that it injected into the economy. My concern is, you know, sort of like what your, your other guests have been talking about. You know, we need a measured pace, we need to, you know, I'm worried when I listen to Powell, not that the Fed is going to let inflation get out of control. Not that they're not going to be aggressive enough in the in the unprintable of money and the raising of interest rates. They've now they're like a kid who's touched a hot stove and they're very burned and they are determined to correct that mistake. My concern is that are now creating risk of the opposite mistake. We got into this mess because they were primarily focused on backward looking inflation statistics and not focused on the obvious warning signs of forward inflation there. Now I think still focused on those backward looking inflation measures, not focused on forward looking and they're not acknowledging the progress that has already been made, which means they're probably going to keep that foot on the brake too long. It also seems like investors are willing to stick around for the ride and not hold so much into one announcement from the Fed, really following this market closely and it does have these really incredible dips and then we see some rebounds here and there. I think we opened um, just or we're looking to hire open our futures are indicating a little bit higher today. So it's evident that that's kind of a similar pattern. What do you think happens if the landing is bumpier than the Fed is expecting? How do you expect the market to react to that. So, first, I think the market is taking great encouragement from those forward looking measures of inflation. The market is seeing what the 10 year treasury is doing. It's seeing the collapse and money supply growth. It's seeing the rollover in lumber prices. The and it's starting to say, you know what? This inflation problem is not unfixable, it's not systemic, it's not like the 70s, this is this is a cyclical inflation problem that can be solved. And that's why the markets taking heart. It would be and I would be right on that boat and I'd be just as optimistic and hopeful that we're going to get through this quickly if the Fed were seeing were showing more signs that they're looking at the same things that the market is my concern, Michael, I'm sorry, I gotta jump in here and get this next one. And we heard from Senator Elizabeth Warren during the hearing expressing concern about the impact of the rate hikes on families. I want to talk to this thought, you know what's worse than high inflation and low unemployment. Its high inflation and recession with millions of people out of work. And I hope you'll reconsider that as you drive this before you drive this economy off a cliff. Sorry to rush you only about 30 seconds here, but what's your reaction to this? Well, I think she's made a good point. The Fed really isn't going to be able to get the texas oil guys to be pumping oil and they're not going to solve the Russian war. So ultimately food and energy is a lot out of the Feds control. And her point is, that's where the pain points are. For american consumers tightening will help all the other sources of inflation, but make the american consumer worse off if it results in a recession and it won't fix the problem of food and energy prices. Michael jones Chairman and Ceo at Caravelle concept. So good to have your perspective. Thank you again for joining us here on cheddar News.