Private Equity 'Thrown Under Bus' by Fed's 'Higher for Longer' US Fiscal Policy
© AP Photo / John Minchillo
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The US central bank is engaged in an effort to reorganize US capital using fiscal policy, directing it away from the financial class and spend-happy bureaucrats and toward industrial leaders and Main Street, in line with international expectations, a financial and geopolitical analyst told Sputnik.
At its first meeting in two months on Wednesday, the Federal Reserve’s Open Market Committee (FOMC) declined to raise interest rates, despite an increase in the inflation rate. Chairman Jerome Powell said there were many influencing economic factors in their decision, adding that another small rate hike was likely before the end of the year, and that it would likely remain substantially high for at least another year afterward.
“Powell did exactly what I expected him to do. He didn’t raise rates and he cut a very hawkish jib at the podium,” financial and geopolitical analyst Tom Luongo told Sputnik on Thursday.
“The FOMC didn’t raise rates because they didn’t need to. The announced oil production cuts by Russia and Saudi Arabia created a big rally in oil prices, which ensures there will be another round of inflation in the West beyond the Fed’s control.”
Luongo said that OPEC “did Powell’s job for him” by causing an uptick in inflation, helping justify his “higher for longer” position of keeping interest rates at record-high levels. He noted that “only a select group of commentators and myself” believed Powell would keep his word, noting that thanks to the FOMC’s updated “dot plot,” bond traders have been “shocked out of their complacency” and denial.
20 September 2023, 19:29 GMT
“Now the bond markets believe it. And that means further normalization of the yield curve, putting tremendous pressure on the ECB [European Central Bank] and other foreign central banks hoping for a reprieve because of falling headline inflation,” he explained.
“Because of the moves in oil, [ECB President] Christine Lagarde’s panicked rate hike from last week, and Thursday’s employment data, Powell knew he could spend the entire press conference sticking to his mantra about serving the Fed’s dual mandate of ‘full employment and stable prices,’” Luongo said, noting that “in Fedspeak, ‘stable prices’ equals a 2% inflation target.”
“Powell knows he can’t really affect oil prices with demand-side tools - he said as much directly in the press conference. So because of this, and the fact that the US economy is in better shape than even he expected at this point, he remains open to further rate hikes to curb credit demand and force a reorganization of capital internally from the financial class back to the industrial class,” Luongo explained.
“In effect, he kept telling the ‘2 and 20 carried interest’ guys in private equity that there are no dollars for them,” Luongo said, referring to a common mantra among hedge fund managers about desired investment fee structures.
“The money is going back to Main St. through reinvestment in savings at higher rates to raise their purchasing power,” he added.
Luongo said Powell’s “main obstacle” is deficit spending by the federal government “running up the bill as far as they can,” which he said was being driven by US President Joe Biden and other “vandals in DC” pursuing their own interests or the interests of multinational corporations.
1 September 2023, 09:20 GMT
“They have much of the GOP complicit in this scheme and that’s what the guys like [Florida Republican Representative] Matt Gaetz are trying to stop,” Luongo asserted.
Gaetz is part of a small-but-vocal dissident GOP faction that has used the GOP’s narrow majority in the House since January to assert itself as the “kingmaker” among the House Republican Caucus, compelling House Speaker Kevin McCarthy (R-CA) to satisfy them lest he lose his leadership of the chamber.
“He did the hard work this summer,” Luongo said of Powell. “By raising interest rates in July, he left himself optionality in September. He was clear that he expects one more hike this year and is still open to another one in Q1 2024. Slowing rate hikes here gives banks a little more time to repair their balance sheets and force them to jettison underwater commercial real estate loans. Powell continues to throw private equity under the bus.”
“He is also forcing Congress to face the music on their egregious spending. The dirtiest secret in Washington is that we could cut the budget between 25% and 40%, reducing the waste, fraud and, frankly, welfare for useless bureaucrats and no one would see a drop in functionality of efficiency. Everyone knows it. Powell can’t say any of this but that’s exactly what he’s targeting.”
