A new Fed chief, Jay Powell, takes office in Foggy Bottom this morning. Back in October, I wrote that the “odds are high…he will face a financial crisis early in his term.” I didn’t guess it would start on day one… or indeed, three days before day one. So much for the honeymoon.
The Fed’s main job is intangible—to ensure confidence in money, markets and the economy. But Friday’s 665 point drop in the Dow measured confidence contracting. Traders are suddenly worried about interest rates (although anyone older than 30 has to be amused that 2.85% on the Treasury 10-year is a source of panic), worried about inflation (although after the last decade of stagnant wages, Friday’s 2.9% rise should be cheered, not jeered), and worried about a tax-fueled spike in growth (with this report from Powell’s Atlanta colleagues leading the way.) A more legitimate reason for concern was last week’s report showing productivity fell in the fourth quarter—since ultimately, rising productivity is the only way growth can be sustained.
I’m guessing Alan Greenspan’s “bubble” comments last week also had something to do with the swoon. Greenspan himself, of course, was tested by the markets on Black Monday in 1987, only two months after taking office, when the Dow fell 508 points. (I know… it’s a much bigger percentage: 23% versus 2.6%.) Greenspan’s smooth handling of that crisis helped reinstill confidence. And it’s worth noting that expansion continued for three more years.
In any event, probably wise to buckle up. The Fed’s historic, decade-long experiment with hyper-low interest rates is coming to an end. And the return to normalcy is likely to be anything but normal. Let’s hope Powell is up to the job.
By the way, Janet Yellen announced Friday she’s joining Brookings’ Hutchins Center for Fiscal and Monetary Policy, funded by Silver Lake co-founder Glenn Hutchins and headed by my former Wall Street Journal colleague David Wessel. (It’s also home to Yellen’s predecessor, Ben Bernanke.) As a send-off, Powell turned his coat collar up, in honor of Yellen’s preferred power-fashion.
More news below.
Indexes across much of Asia and Europe were down on Monday morning’s trading, following earlier European and U.S. declines on Friday. The Nikkei closed down 2.5%, in its biggest fall since the election of U.S. President Donald Trump. Chinese equities held firm, though. Meanwhile, stocks also tumbled in Germany after coalition-building talks missed a deadline. Wall Street Journal.
Samsung Heir Freed
Samsung Vice Chair Lee Jae-yong is out of prison, after his corruption sentence was reduced from five years to two-and-a-half years with a four-year probation. The scandal that led to the sentence also brought down South Korean President Park Geun-hye; Lee was convicted of receiving favors after paying money to her and her advisor, Choi Soon-sil. Fortune
Democratic Memo Vote
The House Intelligence Committee is expected to vote Monday on whether to release the Democrats’ own classified memo, which purportedly serves as a rebuttal to the Republican memo released late last week. The committee previously voted not to release the Democratic memo, but some Republicans on the committee have apparently had a change of heart. New York Times
Weak Tax Clawback
The British government’s attempt to crack down on offshore tax evasion is only yielding £349 million ($492 million) a year, rather than the promised £1 billion. The opposition Labour Party, which requested the figures under freedom of information, said they showed the government’s “utter failure” in ensuring wealthy people and large corporations pay as much tax as they should. Guardian
Around the Water Cooler
Expatriate Tax Bills
Expatriate Americans and green card holders who own more than 10% of a “controlled foreign corporation” will reportedly be hit by the repatriation clause in the U.S. tax reform. “The problem is, the way the law is worded treats every American citizen and green card holder in the world [operating through a foreign corporation] the same as Google,” said tax attorney Monte Silver. Financial Times
Dodge’s MLK Controversy
Some people are not happy about Dodge’s decision to co-opt a Martin Luther King Jr. speech for a Super Bowl ad selling Ram trucks. Given King’s opposition to the Vietnam War and the military spending it entailed, it was a little odd to hear his voice used approvingly behind shots of the U.S. military—though these were just a few of many images in the ad. The King Center was certainly not amused. Fortune
European Sports’ #MeToo Moment
The worlds of Formula One, cycling, and darts have a long tradition of using pretty, scantily-clad women as window-dressing on the sidelines and podiums. Now, following pushback from broadcasters and event sponsors, that tradition is starting to fade, and progressive activists are delighted that women are no longer being treated as objects. Bloomberg
The Berlin Wall has now been down for longer than it stood. The division between the city’s communist east and capitalist west fell 28 years, two months and 28 days ago. However, according to Deutsche Welle’s Marcel Fürstenau, many East Germans still feel like second-class citizens in the united Germany. DW