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The Bland Bombshell and the Big Banks
Is there anyone more bland, more powerful, and less recognizable than Federal Reserve Chair Jerome Powell? He makes money moves more than Cardi B, and yet most people wouldn’t recognize him if he were sitting on their lap in the subway.
Why do relatively obscure banker meetings matter? Fair question, and it’s precisely why our GZERO team in Washington, DC, is covering the IMF-World Bank spring meetings this week.
For Masters of Monetary Policy like Powell, being bland is a strategy, not a characteristic. They speak in a purposely arcane language that requires near Bletchley Park decoding powers because everything they say makes news that impacts markets. This, in turn, affects things like your mortgage, your investments, and your grocery bill. It also impacts global poverty, which ought to make a lot more news. So understandably, they have to be careful and neutral to avoid panics or bouts of enthusiasm and ensure their signals leave lots of room for interpretation. But don’t mistake bland for lack of consequence. In global banking, bland is the brand, but influence is the purpose.
What have you missed so far?
Powell had a major bland moment at the Wilson Center’s Washington Forum on the Canadian Economy, which coincides with the spring meetings, where he hinted he would delay dropping interest rates because US inflation is proving more stubborn than predicted. “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he said, as the finance world listened to him emphasize every SYL-la-ble.
Then, in case anyone missed it, he took out the verbal highlight pen. “We can maintain the current level of restriction for as long as needed.” Whoa. Treasury yields moved higher that very moment, and he wasn’t even done speaking. Translation for those not steeped in Bland Banker Speak: Interest rates are gonna stay higher for longer – at least until the inflation rate hits the target goal of 2%. Govern yourselves accordingly.
That news got a tiny corner of social media all ginned up, giving us the world’s first – and perhaps last – Federal Reserve Meme: Check out this AI-generated Jerome Powell hyped on rate cuts. Maybe Blands really do have more fun.
Meanwhile, Bank of Canada Gov. Tiff Macklem, who was on the same panel with Powell, hinted he might go in the other direction – and having had many conversations with him over the years, I can say that Macklem isn’t bland at all. Just last week, he held the key interest rate at 5% because inflation had centimetered up a titch, but he still suggested a rate drop was “within the realm of possibilities” as early as June.
What would that mean? For one, if Canada drops rates faster than the US Fed, the Canadian dollar would likely weaken considerably, so depending on which way you travel, things could get either a lot cheaper or more expensive.
In short, everything central bankers say makes a difference to millions of citizens, and still, most folks only pay scant attention to talk about inflation and interest rates close to home – not internalizing how much impact these decisions have on major issues like global poverty. For example, GZERO’s own Matthew Kendrick has been reporting from the spring meetings this week, covering the impact of inflation on the most vulnerable economies like Somalia and what is being done to help. You can read his surprising look at the Somali success story on debt reliefhere.
But if world bankers are all so smart, why are one in three countries worse off than in 2019? Why are so many falling back into poverty post-COVID? To find out, our Head of Content Tony Maciulis sat down with Ayhan Kose, the World Bank Group’s deputy chief economist, who told him, “When the food price goes up, the price of oil goes up. That has significant implications for these economies.” He also noted that some countries have experienced “the weakest growth rate on average since the 1990s.” What are the solutions? Watch Tony’s interview here.
News about IMF and World Bank financiers doesn’t often make the front page because it’s so complex, often depressing, and … well, kinda bland. There are other riveting events, like Donald Trump’s first criminal trial, the war in Ukraine, and Iran launching missiles at Israel to grab our attention, as they should.
But spare a moment for the folks who live in Blandlandia – those people at the IMF and World Bank spring meetings. They are participating in panels like “The Path for Taxing the Super-Rich – Towards a Progressive Global Taxation Agenda,” “Biden Pauses LNG; COP 28 Fossil Fuel Phase-Out Decision – Is World Bank Lagging on Fossil Fuels?” and even “The Polycrisis – How Unchecked Public Debt Fuels Corruption and Bad Governance.”
Beneath the bland, the story of our world unfolds. Since 1944, when both financial institutions were established, the World Bank itself has funded over 12,000 programs focused on economic development and reducing poverty. Has it worked? The record is mixed.
There have been big wins – like the reconstruction of Bosnia after the war, or working on debt relief programs, like Matt described in Somalia. But the World Bank also set a goal of eliminating extreme poverty by 2023, and its leaders admit they are not even close.
Meanwhile, the IMF, whose mission is to “firefight” big, macro-economic emergencies, like a currency collapse, comes in for much harsher criticism. Its Structural Adjustment Programs – loans to low-income countries in distress – have been subjected to extensive research, often proving that they have kept people in countries like Zimbabwe or across Latin America in poverty while enriching investors. Are these Western-designed programs just a neo-liberal form of colonialism, as some suggest, or pragmatic ways to get countries onto the path of economic development? The debates are so divisive that China has moved into the space in countries that no longer trust the IMF, using its Belt and Road Initiative to invest in infrastructure and push its own influence. So, politics are driving this as well.
The IMF and World Bank may not always make things better, and there is even paranoia right now that Donald Trump, if he wins in November, might withdraw the US from the World Bank, which would devastate developing economies. Still, these two organizations are relevant and demand our attention.
At GZERO, we are committed to covering these topics and making them accessible and interesting. So please tell us what you think. If you have suggestions for things we ought to cover, or questions about events like the IMF-World Bank spring meetings, send us a note here, and we will post answers to some of your key questions next Thursday.
Thanks for your remarkable attention to all these matters, and now, let’s get at the rest of the news.
– Evan Solomon, Publisher
Federal Reserve Chair Jerome Powell testifies to the Senate Banking Committee in Washington, DC.
Central bankers forecast clouds, with a chance of rate cuts
The millions of homeowners who have seen their mortgage payments double in recent years would no doubt concur with Mark Twain in his assessment of bankers – as the type of people who lend you an umbrella when the sun is shining and want it back as soon as it starts to rain.
Hopes for a break in the monetary policy clouds were frustrated this week as two North American central bankers said that interest rate cuts remain some way off.
Tiff Macklem, governor of the Bank of Canada, said yesterday that the bank’s governing council decided that rates will stay at 5%, at least until it meets again in April, as inflation of close to 3% means underlying pressures persist.
“We need to give higher interest rates more time to do their work,” he said.
The same day, Jerome Powell, chair of the Federal Reserve, told members of the House Financial Services Committee that the Fed is on a “good path” to achieving the desired “soft landing” of a growing economy with inflation back to its 2% target but that further progress is not assured.
The notes of caution come despite both US and Canadian economies avoiding recession. The US economy grew at an annualized rate of 3.2% last quarter. Even Canada’s anemic 1% growth rate suggests monetary policy is working to relieve price pressures, without choking demand.
Macklem said he is confident rates are high enough and that the discussion has now shifted to whether they need to stay at their current level.
Both central bankers characterized future progress as gradual and uneven, as wage growth remains in the 4-5% range.
But the unspoken pressure is political. A Liberal government in Canada will hand down a federal budget on April 16, less than a week after the next governing council decision. The budget date all but rules out the central bank's April meeting as a possibility for a rate cut, given the prospect of inflationary federal government spending.
In the US, it is an election year, which puts inevitable pressure on the Fed from politicians who will have to face angry voters. Powell said he acknowledged the risks of waiting too long to ease monetary policy and the damage that might cause the economy. But he said he did not want to ease credit conditions too soon and see inflation re-accelerate.
Investors expect an initial rate cut in June. Fed officials last year projected three quarter-point cuts this year, but Powell said the Fed would like to see more data to increase confidence that inflation is moving down to 2% before reducing the policy rate.
The benchmark rate has been held in the 5.25-5.5% rate since July.
For cash-strapped homeowners and consumers, the post-inflation rainbow can’t come quickly enough.