FOMC 2022 0615

The Federal Open Market Committee today announced a 75 bp hike in the Fed funds target. It’s firm but not out of line with expectations. The FOMC clearly wants to establish credibility in quelling inflation without capriciously rocking markets. As a long time harsh Fed critic, it feels strange to be defending the committee, but I’m gonna have to give Powell & Company high marks on this one.

FOMC 2022 0615

We can always quibble.  We’d have preferred 125bp, along with a clear statement to the effect of “that’s all, folks” … “we’ll review the rate at each subsequent point and either hike, cut or hold as the data warrant at the time”. It could even ease up on the balance sheet trimming, cutting only non-Treasury securities. Of course the committee has kind of made such things difficult by conditioning the markets for years to expect only the expected. We’re still seeing excessive reliance on foolhardy forward guidance, but at least we’re also seeing concrete action, a step in the right direction.

So as a practical matter our ideal move may be a bit of a fantasy.  But as long as we’re going down that road, we have to reiterate that the best rate policy is none at all.  In contrast to many Fed critics, I don’t have much of a problem with QE, confined to Treasuries and gold, and would prefer to see it completely replace rate targeting as the Fed’s marquee policy tool.  Probably because it’s been done so long, rate targeting has become accepted as normal, but that overlooks the incalculable damage it has inflicted on the economy.

Setting interest rates, arguably the most important prices in the world, is too big of a job for one committee of people, no matter how smart they are. History proves it, and the current economic mess adds an exclamation point.

A simple check on progress is provided by the stock market. lf it starts taking off again, the Fed will have more work to do. We have more sophisticated tools as well. As we said just this morning, The FDI shows clear progress on inflation, and all the Fed need do is not undo it. Get Fed funds into line with the rest of the yield curve now and stop talking about what you’re gonna do later.

That’s what future FOMC meetings are for.

11 thoughts on “FOMC 2022 0615

  1. shiny! says:

    Stocks, with the exception of energy, have gone way green after the Fed announcement. I don’t think this will keep inflation down for very long in energy and food though, which are the things that are killing the average person. Let’s see what tomorrow brings…

    1. Bill Terrell says:

      For sure a big stock rally is the last thing we need, and I don’t think the Fed wants to see it either. It’s been glomming onto the connection and consciously wanted to cool asset prices in order to take pressure off consumer prices.

      On top of inflation, we also have additional price pressures in food and energy, partly due to ill-considered trade sanctions. Not to mention throwing a wrench into the gears of the global financial system in an attempt to punish Putin. These however aren’t inflation … they’re real price increases.

  2. Bill Terrell says:

    Powell’s post-announcement press conference was bullish for assets across the board … stocks, bonds, commodities … except for one … the security the Fed issues. In other words, the dollar lost a little value in terms of the rest … a setback, if transitory, for the Fed’s inflation fighting effort.

    Powell’s presentation was commendable. It’s hard not to be a little sympathetic for a guy who has to very publicly clean up a huge mess largely of his own making. He gives the impression of someone up to the task though. If he and his fellow committee members don’t lose their nerve, his legacy could be the best since Volcker. I generally have little trust in public officials, but believe Powell is sincere in his determination to bring consumer price inflation under control.

    Now if he would just drop the 2% nonsense, the “core inflation” lie, the forward guidance obsession, and the non-UST securities buying that helped him into this mess in the first place … he might one day stand tall with Paul.

  3. jk says:

    people interested in energy might want to buy some unl right now. unl is a natural gas etf [note- sends a k-1 instead of a 1099 so for me preferably in a tax sheltered account].

    gas is a regionalized, or even localized market. oil being a liquid, it’s easy to fill a tanker and ship it anywhere, creating a global market. coal being a solid is even easier. gas, otoh, is a gas and has to be cooled in multi-billion dollar facilities to a liquid form and then transported on highly specialized tankers. because of this, the price can vary widely from region to region. about a year ago natural gas in europe cost 15x the cost of gas in the u.s.

    these regional price differential are gradually being arbitraged away via the shipment of liquified natural gas. there are only 7 lng plants in the u.s.. a couple of days ago one of the biggest, representing 20% of u.s. lng production capacity, had an explosion and went off-line. thus a lot of gas could not longer be exported, raising prices in europe and asia, but producing a surplus domestically, dropping the price.

    unl sold off about 14% on the basis of these short term factors. in the long run, though, gas will become a global market reflecting a global price less shipping/processing costs.

  4. shiny! says:

    jk- do you happen to know the difference between UNL and GAZ, aside from the K-1 and 1099?

    1. Bill Terrell says:

      GAZ also differs from UNL in being an exchange traded note. i.e. buying it is also extending credit to the issuer.

  5. Jk says:

    look at and then look at the performance feature at and compare the performance of the 2 etf’s

  6. jk says:


    1. using stockcharts- the symbol entry field is labelled “sharp chart”, but that label is a drop down menu. choose “performance” and you can enter multiple symbols and display their pice changes simultaneously in a graph. use the slider at the bottom of the graph to define various time periods of interest. these days, for example, i’m often looking at jan 2020 and march-april of 2020 as initial periods.

    2. another fact about natural gas. on an energy equivalent basis natural gas is trading at about $40/bbl oil. of course oil and gas are not perfect substitutes, but this difference seems extreme, and provides another impetus for gas prices going forward.

    1. shiny! says:

      Thank you, jk.
      Nat Gas does seem to have the more upside potential vs oil. My question was more about how to measure the pros and cons of various investment vehicles. Not being familiar with how futures work, I didn’t know if there was more risk to UNL than GAZ or a company like EOG, which is a good company but their returns are nothing like UNL.

      Energy and agriculture are down with commodities today; energy taking the worst hit. One day is not enough to make a thesis regarding how these sectors fit with System’s copper line, but it’s interesting. Oil and gas are going to be longterm holds but I decided to trust Systems and took some profits last week. Glad I did! Thanks again, Bill.

      1. Bill Terrell says:

        You’re very welcome, Shiny! I like gas, too … it’s the cleanest of the hydrocarbons and since I heat my house with it, can justify owning it even without a bull case. A “natural” hedge … if it goes down then so will my utility bills:-).

        I may be a little more confident about SS forecasts than usual … it’s had a great run the past few quarters. I’m overweight bonds and gold now partly due to the picture it paints. On the other hand, having just run extensive testing, I’m also reminded there are times it just plain misses the mark. So I always have other reasons for doing what I do and avoid making big bets, always maintaining at least some exposure to each of the major asset classes. Diversification and balance have saved my assets more than once;-)!