Tough to see how the Fed could survive another financial crisis intact
It's not surprising that the Fed is facing criticism as the economy stagnates. What's shocking where it's coming from and how quickly it's grown aggressive.
It's like a tipping point has been met in the past month and now the knives are out.
In yesterday's WSJ, former Fed Governor and QE supporter Kevin Warsh destroyed the Fed. He said it was filled with groupthink and more concerned about growing its own power than the economy.
Today it's WSJ Fed mouthpiece Jon Hilsenrath who has suddenly bitten the hand that feeds him. His article, titled 'Years of missteps fuelled disillusion with the economy and Washington'.
"Once admired globally for their command of the economic system, central bankers now are blamed by the left and right for bailouts during the financial crisis and for failing to foresee and manage forces suffocating the global economy in its aftermath," Hilsenrath writes.
In other words: You promised us all the answers, we trusted you and you've let us down.
No cult of personality at the Fed
One of the problems at the Yellen herself. Even for a central banker she's bland. That's oftentimes an advantage but in a world that's looking for inspiration, she's lacking. Earlier in her tenure she projected some certainty and confidence but after getting burned on a series of poor forecasts she's unsure and hesitant.
The bigger part of the problem is political. The Fed and other central banks have become easy punching bags for politicians who don't have any solutions of their own. The risk is that all the complaining forces them to reshuffle the Fed.
Then what? You might end up with some kind of Donald Trump of central banking.
What's lacking almost everywhere is answers. Few mainstream leaders even pretend to have them but they never lack in criticism. The world is gravitating to people with confidence and solutions, even if they're untried.
Some kind of crisis is coming. I don't think the Fed can survive it intact. Even another few years of lacklustre growth will be the end of Yellen.
Kuroda-style or something else?
What's harder to understand is what's coming next. The BOJ has played every card in the modern central banker deck and has still come up short.
In my ideal world, central bankers would leave rates near zero, forget more QE and defer to politicians for answers. The problem is that politicians appoint central bankers and there's always a yes-man waiting in the wings.
So we're inevitably headed for a world of central bank experimentation and the risks far outweigh any possible benefits.