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Why the Fed needs to start turning off the spigot

August 27, 2021, 9:17 AM UTC

Good morning.

The Federal Reserve Bank of Kansas City’s annual Jackson Hole conference is about as exciting as monetary policy gets. It gives central bankers an opportunity to spend a few August days in one of the most beautiful spots in the world… and talk a bit about economic policy while there. I’ve gone a couple of times in the distant past, and would go again if ever invited.

But this year, there will be no Grand Tetons. The meeting has gone virtual. And that leaves only the policy makers’ words to attract attention. The big talk topic on the table: Isn’t it time (or past time) for the Fed to start pulling back its extraordinary “quantitative easing” support for financial markets?

I give Fed Chairman Jerome Powell enormous credit for his quick and aggressive actions to shore up the economy in the face of a pandemic. But the U.S. economy has now recovered to pre-pandemic levels, inflation is higher than it has been in many years, and unfilled jobs are going, well, unfilled. Former Chairman William McChesney Martin famously said the Fed’s job “is to take away the punch bowl just as the party gets going.” This party is well underway.

I understand many people are still suffering, particularly in the hard-hit hospitality, transportation and food service industries. But it’s not clear to me that the Fed’s buying of financial assets is doing much to help those people. It mainly helps those who own financial assets.

So let’s hope Powell does the right thing today, and starts turning off the spigot. The only thing arguing against it, as former Treasury Secretary Lawrence Summers says in this piece published yesterday in the Washington Post, is that the Fed feels “a need to maintain credibility given previous commitments, and a reluctance to accept the immediate pain and dislocation associated with changing course.” Financial markets will be unhappy, as they always are when the Fed moves to tighten. But financial markets have had more than their fair share of happiness during the past year. An adjustment is in order.

More news below. 

Alan Murray


Apple concession

In a significant concession regarding its contentious practice of charging app developers 15%-30% commissions for their iOS-based digital subscriptions and media sales, Apple will allow them to email their users about cheaper ways of paying for these services. This is part of a preliminary settlement in a nearly two-year-old U.S. lawsuit (that isn't the Epic Games suit). Apple would still not allow in-app notifications about alternative payment methods, though. Fortune

Blood clots

People who are worried about getting rare blood clots from AstraZeneca and Pfizer-BioNTech's COVID-19 vaccines should be a lot more worried about getting the clots from the disease itself. A large study shows that for every 10 million AZ-dosed people, around 66 people, who wouldn't ordinarily get clots, will get them. For every 10 million unvaccinated people who get COVID, 12,614 will get the clots. Bloomberg

IPO tussle

China is reportedly set to block Chinese companies with loads of sensitive personal data from holding their IPOs in the U.S. Pharma would likely be able to sidestep the new rules, but tech wouldn't. Wall Street Journal

Evictions return

The U.S. Supreme Court has blocked the Biden administration from blocking evictions across the U.S. According to the Court, the CDC's reimposition of the moratorium would have required explicit congressional authorization. Fortune


For goodness's sake

"Focusing on the business case for social issues is well-meaning, but it can be damaging in the long run," writes ethicist Azish Filabi in this thoughtful piece for Fortune. "It implies that there is a financial cost-benefit analysis for all that ails us as a society, and that business is the solution. Moreover, if your financial case ends up not reaping the anticipated rewards, it leaves leaders skeptical of investing in what matters most—people." Fortune

Vaccine inequality

The shortage of vaccines in developing countries could take $2.3 trillion out of the global economy, according to an Economist Intelligence Unit report. "Vaccination campaigns are progressing at a glacial pace in lower-income economies," the report stated. CNBC

Scottish independence

The U.K. government no longer seems to be solidly opposing a new referendum on Scottish independence. According to Scotland Secretary Alister Jack, the government would accept a referendum if there was "clearly a settled will in favor" of one; he then clarified that this meant at least 60% of Scots consistently favoring the poll. And so it begins… Politico

Long-Term Stock Exchange

Eric Ries's Long-Term Stock Exchange has finally listed some companies: Asana and Twilio. As the name suggests, the idea is to create a market focused on the long-term future. Ries: "The universe has finally made it happen…The idea of an actually honest-to-God new model of governance that’s being adopted is a rare event." Fortune

This edition of CEO Daily was edited by David Meyer.

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