'The Anguish of Central Banking'/Beige Book commentary, including those on tariffs/Earnings

As Jay Powell is likely going to remain in his seat until May 2026, I’m not going to add much here as I believe we all agree that it would be a mistake if he was fired. Hat tip to my friend Brent Donnelly for reminding me of a speech that Arthur Burns, the Fed Chair under Richard Nixon and during that inflationary time, gave in 1979 titled “The Anguish of Central Banking.” This was most relevant to the current circumstances:

“In most countries, the central bank is an instrumentality of the executive branch of government - carrying out monetary policy according to the wishes of the head of government or the ministry of finance. Some industrial democracies, to be sure, have substantially independent central banks, and that is certainly the case in the United States. Viewed in the abstract, the Federal Reserve System had the power to abort the inflation at its incipient stage 15 years ago or at any later point, and it has the power to end it today. At any time within that period, it could have restricted the money supply and created sufficient strains in financial and industrial markets to terminate inflation with little delay. It did not do so because the Federal Reserve was itself caught up in the philosophic and political currents that were transforming American life and culture."

Note that it was the summer of 1972, months before the November election that Nixon was really cajoling Burns for easy money and you can see the result. CPI in June 1972 went from 2.7% to 12% by December 1974.

CPY 1965-1980 y/o/y

From the Fed’s Beige Book, it does read like blah economic growth but slightly better than the prior Beige Book. “Economic activity increased slightly from late May through early July. Five Districts reported slight or modest gains, five had flat activity, and the remaining two Districts noted modest declines in activity. That represented an improvement over the previous report, in which half of Districts reported at least slight declines in activity. Uncertainty remained elevated, contributing to ongoing caution by businesses.”

“Nonauto consumer spending declined in most Districts, softening slightly overall. Auto sales receded modestly on average, after consumers had rushed to buy vehicles earlier this year to avoid tariffs. Tourism activity was mixed, manufacturing activity edged lower, and nonfinancial services activity was little changed on average but varied across Districts.”

“Loan volume increased slightly in most Districts. Construction activity slowed somewhat, constrained by rising costs in some Districts. Home sales were flat or little changed in most Districts, and nonresidential real estate activity was also mostly steady.”

On the labor market, “Employment increased very slightly overall, with one District noting modest increases, six reporting slight increases, three no change, and two noting slight declines. Hiring remained generally cautious, which many contacts attributed to ongoing economic and policy uncertainty…Although reports of layoffs were limited in all industries, they were somewhat more common among manufacturers.”