Famed economist Ed Yardeni joins this episode of “The Sherman Show,” where he discusses, among other topics, the importance of monetary policy for stock and bond returns, the risks of the traditional 60-40 stock-bond allocation given the outlook for near-zero interest rates and the compromising of the Federal Reserve’s independence. Dr. Yardeni is President of Yardeni Research Inc., a provider of global investment strategy and asset allocation analyses and recommendations. The podcast was recorded Oct. 27, 2020.
Dr. Yardeni calls Jerome Powell a “pragmatic pivoter,” given the willingness of the Chairman of the Federal Reserve to reverse himself on policy. For example, Dr, Yardeni notes that Powell has gone from being a hater of Modern Monetary Theory to its “No. 1 implementer.” While Powell is prepared to continue with unprecedented asset purchases, in Dr. Yardeni’s view, the Fed chairman probably won’t go so far as to implement negative interest rates, given the poor outcomes such policies have produced in the eurozone.
One victim of the Fed’s new embrace of fiscal activism is probably the central bank’s independence. “Of course, over the years,” Dr. Yardeni notes, “presidents have on occasion tried to bend [the Fed’s] arm and get them to do policy their way. I think Arthur Burns caved in to Nixon a few times. But all in all, the Fed has maintained its independence. But now, too, for the Fed to, on a regular basis, be calling for more fiscal stimulus crosses that line. And that means that its independence, I think, has been somewhat compromised. As you know, President Trump several times urged Powell to lower interest rates, and Powell basically resisted and implied that he was going to remain independent. But circumstances changed. And basically Trump got what he wanted with low interest rates.”
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