Recently, due to the ongoing escalation of the Russia-Ukraine conflict, crude oil prices have surged to over $110 at the fastest rate in four decades. A new oil crisis is gaining momentum, and the soaring oil prices have suddenly increased the pressure on the already high level of U.S. inflation. At this moment, for Powell, it represents the biggest test of his tenure as Fed Chair:On one side, there is persistently high inflation, which even shows signs of accelerating; on the other hand, the financial markets are becoming increasingly fragile, with volatility in U.S. stocks surging since the start of 2022, and many stocks crashing, including Meta, $Meta Platforms (META.US)$ Netflix, $Netflix (NFLX.US)$ PayPal, $PayPal (PYPL.US)$ Shopify, $Shopify (SHOP.US)$ Snowflake, $Snowflake (SNOW.US)$ and other star companies.
For Powell, there are currently two options:
The first option is to prioritize controlling inflation, disregarding other obstacles, by swiftly raising the federal funds rate and subsequently implementing rapid quantitative tightening;
The second option is to continue balancing inflation control with asset prices, as the U.S. stock market remains a primary investment destination for pension funds in wealthy nations, and faces various pressures. If the market experiences a significant downturn, the pressure on Powell would intensify.
At this moment, how will Mr. Nice Guy Powell choose...