"Powell is the Scrooge Who Ruined Christmas"...Fed Loses Market Trust

Interview with Jong Kwangsoo, President of the Korea Economic Association and Professor at Johns Hopkins University

"Fed Raises Doubts About Neutrality with Rate Cuts Before Election"

U.S. Stock Market Stimulates Consumption...Strong Growth Backbone

'Scrooge Who Ruined the Christmas Atmosphere'

This is the new nickname for Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), conveyed by Jong Kwangsoo, President of the Korea Economic Association and Professor at Johns Hopkins University. It's a jab at Chairman Powell for failing to deliver predictable monetary policies. Professor Jong particularly criticized that during the Federal Open Market Committee (FOMC) last December, "Chairman Powell disappointed the market by adding unnecessary comments to the rate cut, pointing out the inflation risks expected from Trump's (tariff) policies while saying the U.S. economy is surprisingly strong."

Fed Fails to Gain Market Trust

In a written interview with the Korea Economic Daily on the 2nd (local time) before attending the American Economic Association meeting held in San Francisco from the 3rd to the 5th (local time), Professor Jong responded this way when asked about the Fed's recent monetary policy. He cited several recent Fed monetary policies as examples.

Professor Jong criticized, "It was a mistake that (the Fed) dashed the market's expectations for a rate cut even though inflation was clearly subsiding in the middle of last year," adding, "Ultimately, they adjusted the rates close to the election period, raising doubts about political neutrality." This comment was regarding the Fed's decision to lower the base rate by 0.5% points at the September FOMC before the November election last year.

The fact that there were minority opinions opposing the rate cut decision at the December FOMC last year also damaged the Fed's credibility, according to him. It was reported that some members within the Fed opposed the rate cut, judging that there were inflation concerns due to the stronger-than-expected U.S. economy.

U.S. Economy Best Among Developed Countries...May Slow Down This Year

Professor Jong expects the growth trend of the U.S. economy to be maintained for the time being. He analyzed, "U.S. companies are leading the Fourth Industrial Revolution, represented by artificial intelligence (AI), and the stock market is valuing their future highly."

The S&P500, for instance, rose by about 23.3% last year. Professor Jong analyzed that this strong stock market promoted consumption among Americans. Citing research from the National Bureau of Economic Research, he explained, "The rising stock market has influenced American consumption," and "when the stock value rises by 1 dollar, it stimulates consumption by about 3 cents."

Trump's Immigrant Expulsion Likely Not to Have Major Short-term Impact

Regarding President-elect Donald Trump's expulsion of illegal immigrants, Professor Jong diagnosed, "There is a possibility of causing inflation through production and supply contraction due to labor shortages." However, he pointed out, "If numerous illegal immigrants are expelled, the resulting demand decrease will somewhat offset the inflationary pressure."

Professor Jong was skeptical about some claims that Trump's tariff policy would be used as leverage to gain other concessions from counterpart countries. He believed it was likely to be implemented as it was a major pledge of President-elect Trump. Professor Jong explained, "The consumer price increase risk expected from Trump's tariff imposition was reflected in the hawkish decision of the December FOMC last year."

San Francisco = Correspondent Park Shinyoung nyusos@hankyung.com