Fed’s Powell Warns ‘Some Pain’ Ahead

Quite a busy summer Friday! The Justice Department released a heavily redacted version of the affidavit used to get legal authorization to search former President Donald Trump’s Mar-a-Lago estate in Florida. And Federal Reserve Chair Jerome Powell delivered a stark warning that the bank will do what it takes to fight inflation, even if it means a weaker economy and job market.

Here’s what you need to know before you log off for the weekend.

Fed’s Powell Warns ‘Some Pain’ Ahead

Federal Reserve Chair Jerome Powell said Friday that the central bank intends to continue its aggressive battle against inflation and warned that the interest rate hikes intended to bring inflation back toward a 2% target rate will result in “slower growth and softer labor market conditions” that will “bring some pain to households and businesses.”

In comments delivered at the Federal Reserve Bank of Kansas City’s annual economic policy symposium in Jackson Hole, Wyoming, Powell made it clear that the battle against inflation is not over, and that the Fed will use its tools “forcefully” as it tightens the flow of money through the economy. “Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said. “The historical record cautions strongly against prematurely loosening policy.”

“We must keep at it until the job is done,” Powell added.

Another Volcker recession? In his brief, eight-minute statement — Powell said “my remarks will be shorter, my focus narrower, and my message more direct” — the Fed chief explicitly cited Paul Volcker, the former Fed chief who famously jacked up interest rates and pushed the economy into recession in the early 1980s during a period of stagflation.

Powell said one lesson learned from the Volcker years was that the Fed needs to act quickly and maintain its anti-inflationary efforts until the problem is eliminated. That didn’t happen in the 1970s, Powell said, and inflation grew out of control. “A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year,” he said. “Our aim is to avoid that outcome by acting with resolve now.”

Although Powell said he was hoping to avoid the harsh course of action taken by Volcker, some observers thought the overall tone of his comments was severe, with strong hints that a Fed-induced recession is likely in the coming months.

Greg Ip of The Wall Street Journal noted that Powell said the Fed would “keep at it” until the job was done — and that Volcker’s autobiography was titled, “Keeping at It.” Ip told CNN that Powell’s comments were “as close as you'll ever hear a Fed chairman say get ready for a recession.”

Michael Feroli of J.P.Morgan said the Fed chair’s comments were “brief and hawkish” and “appeared to push back against the idea that the Fed would be easing policy next year.”

Investors on Wall Street appeared to agree that Powell was sending a very hawkish message, with the S&P 500 index losing over 3.3% by the end of trading.

Not everyone was so gloomy, though. Analysts at Goldman Sachs said they are sticking with their forecast of smaller rate hikes by the Fed in the coming months. “We continue to expect the [Fed Open Market Committee] to slow the pace from here, delivering a 50 [basis point] hike in September and 25 [basis point] hikes in November and December, for a terminal rate of 3.25-3.5%.”

Still, they noted that there was a risk that the Fed would impose another 75-basis-point hike in September, and the risks for interest rates are now “tilted to the upside.”

Biden Admin to Spend Nearly $100 Million on Health Care ‘Navigators’

The Biden administration said Friday that it will spend nearly $100 million on grants to help consumers sign up for Affordable Care Act plans in the 2023 open enrollment period.

The $98.9 million in funding will go to 59 so-called “navigator” groups that help people find coverage via state and federal marketplaces, Medicaid or the Children’s Health Insurance Program. The Centers for Medicare & Medicaid Services (CMS) said the grants will enable navigator organizations retain and add to the more than 1,500 staff trained to help consumers find coverage.

“Today’s announcement marks the single largest Navigator funding award provided to date and serves as a continuation of historic levels of funding. The Biden-Harris Administration previously awarded $80 million to the program, quadrupling the number of Navigators for the 2022 Open Enrollment Period,” CMS said in a statement.

A record number of Americans, more than 14.5 million, signed up for Affordable Care Act plans through the marketplaces during the last enrollment period, helping to drive the national uninsured rate to an all-time low of 8%.

The enrollment period for 2023 is scheduled to run from November 1, 2002 to January 15, 2023.

Number of the Week: $400 Million

Barre Seid, an elderly, Chicago-based electronics magnate, donated an incredible $1.6 billion last year to a new conservative nonprofit group controlled by Leonard Leo, an influential right-wing activist. The structure of the donation reportedly allowed Seid to avoid up to $400 million in taxes.

As first reported on Monday by Kenneth P. Vogel and Shane Goldmacher of The New York Times, the extraordinarily enormous donation “was arranged through an unusual series of transactions that appear to have avoided tax liabilities.” Seid reportedly donated all shares of his electrical device manufacturing company, Tripp Lite, to Leo’s 501(c)(4) nonprofit, called Marble Freedom Trust. Tripp Lite was then sold to an Irish business for $1.65 billion — with Marble Freedom Trust receiving the money “in a transaction that appears to have been structured to allow the nonprofit group and Mr. Seid to avoid paying taxes on the proceeds.”

ProPublica and The Lever reported Monday that the way the combination of transactions allowed Seid to avoid up to $400 million in state and federal income tax. “If the person who had owned the stock had sold the stock himself, he would’ve been taxed on the appreciation in the stock,” Ellen Aprill, a tax law professor at Loyola Marymount University, told those news sites. “Whereas if you give it to the 501(c)(4), there’s no charitable deduction for giving the money, but you avoid the tax on all of that appreciation.”

The structure of the deals, ProPublica and The Lever note, also maximizes the amount of money available to Leo’s conservative foundation — resulting in what they describe as “a political war chest that will likely supercharge efforts to further shift American politics to the right.”

And Leo reportedly was paid $350,000 in salary by the trust.