Jay Powell is replacing Janet Yellen as the Fed chair, a move that was expected, and at least for this writer, disappointing. While Stanford economist John Taylor has his detractors, he would have brought some discipline and clarity to the Fed. Instead, we can expect that the Yellen era of soft monetary policy will continue. Powell, a lawyer by training, may bring a lighter touch to bank regulation, in in terms of the the Fed’s responsibilities under the Dodd-Frank law. Small and mid-size banks are likely to see some relief from the bureaucratic burdens of oversight compliance that their larger competitors can more easily afford. The Fed will remain reluctant to raise rates to market levels and may take forever, or possibly longer, to get its balance sheet back to historical norms.

One of the reasons offered for the Fed to keep rates as they are is that inflation has been so low for so long. They have targeted 2% inflation and rarely reached it, so some experts suggest that the Fed can let inflation rise above that since they’ve developed a buffer in recent years. Really? A 2% inflation rate “only” destroys almost 25% of purchasing power over a decade. And then there’s the distortion of frame of reference. If inflation is zero, but income falls 5%, that means in a practical sense that goods cost 5% more. No inflation does not mean that goods and services are easy to buy. You do have to wonder if the Fed really understands and takes these issues into account as the skeptical “I can’t eat an iPad” comment in response to a Fed member’s comment underscored more than six years ago. 

Low interest rates have encouraged financial engineering in major companies as they use low interest rates to refinance their balance sheets (a good idea) and make stock buybacks (a bad idea).