Grading Powell’s Fed: good for stocks, bad for affordability

Subscribe to enjoy similar stories.Are you better off than when Jerome Powell assumed the chair of the Federal Reserve Board on Feb. 5, 2018? From the narrow viewpoint of investors, the answer would be yes.Over those eight-plus years, the central bank and the markets experienced a once-in-a-century pandemic, a near-total shutdown of major economies, and nearly an acute seizure of financial markets, followed by the biggest surge in inflation in over four decades.

After all that, Kevin Warsh is taking over the Fed after the S&P 500 index and the Nasdaq Composite notched record highs, again, this past Thursday.To be precise, $10,000 put into the popular State Street SPDR S&P 500 exchange-traded fund on Powell’s first day as Fed head would have more than tripled by this past week, to over $32,144, including reinvested dividends, according to data compiled by Barron’s researcher Dan Lam. That attests to the appreciation in the megacap growth stocks that dominate the S&P 500, especially since the takeoff of artificial-intelligence-related enterprises in late 2022.But the gains in that barbarous relic, gold, have surpassed the AI-powered stock bull run.

The same $10,000 in the SPDR Gold Shares ETF would have grown to over $34,000. If one accepts gold as real money, as opposed to paper currencies, stocks have not gained in real terms over that span.The rise in stocks and gold has paralleled the expansion of the Fed’s balance sheet, which, in colloquial terms, is how the central bank prints money.

The Fed’s assets more than doubled from when Powell took the reins to their peak in March 2022; they are 50% bigger as he steps down. Asset prices have risen along with this liquidity expansion.