How long until Democrats throw Jerome Powell under the bus?

How long will it be until Democrats decide to throw Jerome Powell under the bus?

After all, why should President Biden’s big-spending agenda absorb the stink-bomb of inflation when the Federal Reserve chair is also clearly to blame for soaring prices?

A new report shows inflation is running hotter. The Consumer Price Index (CPI) rose 6.8 percent in the 12 months ending in November, the most in 40 years. 

This is dangerous for Democrats. Voters not only consider inflation our number one concern today; they also blame Biden. A scapegoat would come in handy.

Famed money manager Mohammed El-Erian wrote in August that the Fed’s ultra-loose monetary policy was “increasingly putting at risk not just the recovery but also President Biden’s transformational economic agenda.” He’s right; it’s amazing that more Biden apologists have not jumped on that bandwagon.

Here’s why: It is inconceivable that Powell did not foresee the mounting pressures that are boosting prices. A fast-tightening labor market, excess demand resulting from federal government payments that the country did not need, rising oil prices and – yes – supply chain problems that created head-spinning price anomalies early on should have derailed the Fed’s bond-buying program months ago; all these pressures were like a tea kettle sounding its whistle just before it bursts.

In addition, Powell seemingly ignored two very real causes of the booming rise in demand: an estimated $40 trillion increase in consumer net worth over the past two years, which economists say reliably leads spending by two quarters, and excess savings of $2.0 trillion coming into 2021, which also pumps up consumer outlays.

Despite surging growth and rising prices, Powell kept the monetary spigot wide open.

Just how open? The Fed’s balance sheet is up 20 percent from last year. In August, El-Erian noted that from the beginning of the COVID-19 crisis, the Fed’s balance sheet had doubled to roughly $8 trillion, as it continued to buy $120 billion of bonds every month, all while also keeping real interest rates at zero.

This is not normal. It is also reckless.

El-Erian was not the only voice warning that Fed policy was becoming dangerous. For months there has been a steady drumbeat of economists and former Fed officials warning that inflation was getting out of hand and that the central bank needed to act. In recent weeks, that murmur rose to a roar as prices continued to rise, unemployment declined and expectations grew that inflation would continue to surge into next year.

All the while, Powell resisted the push, reassuring Americans that soaring prices on everything from chicken breasts to Christmas trees was “transitory” and would soon ease. Until suddenly, he saw the light.

Biden re-nominated Powell for another term as chairman of the Federal Reserve Board on Nov. 22. Just eight days later, the central bank’s chief markedly changed his tone and signaled an acceleration of the Fed’s tapering program. 

Coincidence? Skeptics might conclude that Powell held off combatting inflation in order to win another four years in the prestigious post. After all, it was obvious the White House did not want to see the economy slowed by a more restrictive monetary policy.

The fact that Biden interviewed only one other candidate to lead the Fed – confirmed liberal and “dove” Lael Brainard – clearly signaled the White House’s preference.

In any event, by the time of his re-appointment, it was apparent that Powell and the Fed had fallen way behind the curve and that corrective measures lay ahead. His “Great Awakening” triggered a market plunge, and the VIX, a measure of expected volatility, spiked 30 percent. Stocks have been skittish since.

Wall Street’s leading economist is predicting that unemployment may fall to 3 percent – or lower – by the end of next year. Ed Hyman, who for 40 years has dominated the institutional investor rankings of Wall Street economists, is also projecting that, on the basis of an extraordinarily tight labor market, wages are set to “increase significantly” and that a wage-price spiral is gathering momentum, even as the headline CPI may be peaking.

The shocking employment forecast by Hyman is backed up by a JOLTS report showing 11 million unfilled jobs and people quitting their employment at a near-record pace.   

In addition, weekly jobless claims for the week ending Dec. 4 came in at 184,000, the lowest since 1969, and the unemployment rate tumbled to 4.2 percent in November, down from 4.6 percent in October.

Workers are increasingly in the driver’s seat. Consequently, wages are going up.

For some, that will be good news. For the economy as a whole, the worker shortage is a problem, slowing growth and boosting costs. Near term, growth will remain robust, but there are warning signs, like a downturn in consumer and CEO confidence, which could suggest trouble ahead.

El-Erian predicted that continued excess monetary largesse from the Fed risks “creating a perfect storm for the U.S. economy later this year and early next year: a combination of high inflation, slowing growth and financial instability.”

Democrats will not take responsibility for the bumps ahead; they will pin that on Trump-appointed Jay Powell. Wait and see.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.