The Fed Announces
The Federal Open Market Committee announcement:
There is not an iota of justification for policy easing. It will exacerbate the inflation problem.
The Fed Announces
The Federal Open Market Committee announcement:
There is not an iota of justification for policy easing. It will exacerbate the inflation problem.
YOUR BEST POST EVER!
Ha ha ha!!! I expected a screed…
Seriously, is there anything that you see that justifies this (like decelerating money supply, tightening credit markets, CRE refunding issues) that could have pushed this, or did they simply follow through with what the market was expecting? I’ve been a little busy, so I’ve taken my eye off the ball, so to speak, but I guess you could speculate that Powell wants to keep his job?
Haha thanks Chris. Guess I figured my rationale on Fed easing is pretty well of record by now. I think they did this because they had already decided to after months of pressure from Wall Street and had prepared the markets for it. Really lousy basis to make policy, but they’ve cultivated this fetish for predictability and are too craven to renounce it.
Fed’s formal MO:
1 Start with statutory mandate.
2 Review data.
3 Formulate policy decision to achieve statutory mandate.
Fed’s actual MO:
1 Start with policy decision.
2 Review data.
3 Select data to rationalize decision in terms of statutory mandate.
The policy decision is predetermined by its own prior guidance based on its financial and political constituencies. We don’t have inflation by accident; we have it because wealthy and powerful interests profit from it.
Job security concerns could kick in later. Personally, though I support much of Trump’s policy playbook, I was appalled by his Fed hectoring last term. The Fed needs no White House encouragement for easy money; it already has Wall Street for that.
Reportedly Trump has already tipped plans to keep Powell on through the remainder of his current term. If there is a basis for firing any of these people, it’s not insufficient inflation.
There is btw a theory making the media rounds that has an air of credibility … that the Fed is cutting rates because of stresses in the banking system. The banks, so it goes, are insolvent because of tons of under water long term treasuries on their balance sheets. Raising treasury prices by lowering treasury yields would ease these stresses.
There are two problems with this theory.
First, cutting short rates is resulting in higher long rates (and lower bond prices) … making the banks’ problems even worse. More inflation is anathema to bonds, and the Fed’s flimsy stance on inflation is counterproductive. If anything, the banks would be better aided by some form of QE, likely disguised as some kind of special facility, not lower short term rates. Or better yet, a firm stance on inflation.
Second, any such “help” to the banks comes at the expense of the long-suffering general public already buckling under the weight of years of inflation. The Fed cannot create wealth; it can only move it around. Whatever it gives to the financial elite comes from Joe and Jane Sixpack. This has been the big heist since 2008. Joe and Jane may not realize who is picking their pockets, but are “fed” up and just expressed their frustration at the ballot box.
I’ve wondered about the talk of yield curve control to set the interest rates in Treasury bonds. That’s the only way the Federal Reserve can save bozo banks such as Silicon Valley Bank without yet another bailout by the FDIC making all depositors whole and buying the banks’ assets at par or higher.
If the Fed tries yet another round of large scale asset purchases (quantitative easing) to try to lower rates at the long end, I’ve got a slug of Treasury bonds I’ll be more than happy to put to them. I have a funny feeling that a lot of individual and institutional investors will do the same. I’ve sold my I-bonds because the stated rate of inflation the U.S. government used to determine interest paid is more insult than I can bear.
Stanley Druckenmiller has stated that he’s got a short position in Treasury bonds. I seem to remember him saying that he has not gone big yet.
Unless the Fed can force someone (who?) to buy trillions of dollars of Treasury bonds, I don’t know how they can lower interest rates at the long end. And unless Trump really can end all the silly wars and further cut the defense budget while Elon Musk maybe fires 80% of all federal government workers, I don’t see inflation coming down. That Trump is talking about cutting taxes even more makes high inflation that much more likely.
You can think of yield curve control as a form of QE … the Fed buys government paper with freshly minted dollars. The main difference is that with YCC it announces specific rate (yield) targets and buys whatever quantity is necessary to reach them. It’s the mirror image of plain vanilla QE, where the Fed targets a specific quantity and rates land where they may.
Because with YCC the quantity is unlimited, it’s a more aggressive intervention than with plain vanilla QE. At the same time, it’s more analogous to targeting a Fed funds rate, where whatever amount of reserves are needed to reach a target rate are supplied. This is behind my long held view that the Fed should be prohibited from any form of rate targeting. It’s decades of supposedly baseball and apple pie rate targeting that got us to this point in the first place.
Either way you’re absolutely correct that the activity is inflationary. Again it’s bailing out the financial elite at the expense of the ordinary citizen. No matter how clever the scheme, it boils down to the same thing. A treadmill where bailouts encourage more risk taking which leads to more bailouts etcetera until the entire system collapses. Your attempt to save the few ultimately destroys everyone. The only genuine exit ramp is to let the failures occur. Allow the big money to bear the cost of its own risk taking, and where necessary, only make whole limited deposits per the traditional FDIC model. Any system that socializes all risk return parity ultimately fails.
BTW I also agree there is no way out of at least some ongoing inflation. The federal debt is just too effing big. If you haven’t already, check out the interview I linked here.
FWIW I continue to have some Treasuries via ETFs but have substituted gold and other commodities for a substantial portion of them. On the same expectations for inflation, dollar debasement, and financial repression. Of course that’s fine for us, but doesn’t cure the systemic disease.
I think Trump will be better than the alternative, but any resemblance between him and a fiscal conservative would be purely imaginary. Even slashing all the excess and waste in the federal leviathan wouldn’t be enough to cover the debt. Government workers are but a drop in the budget ocean. Wars need to be de-escalated and SS retirement ages need to start rising again. We can’t afford to subsidize everybody’s worthless college degree and pay for everybody’s weight loss meds. The best we can hope for would be to start to see at least some sign of visible concern and restraint in the fiscal overflow. It’s been barely on the political radar screen.
The Fed’s role in creating the mess also has to be acknowledged. Low rate policy “works” by incentivizing borrowing, and politicians are not immune to the temptation. It’s no accident that this fiscal disaster mushroomed after years of ultralow rate policy.
The upshot is that the notion that more low rates will cure the problem is a pipe dream. It would be like trying to cure an alcoholic with more booze.
Excellent blog here Also your website loads up very fast What web host are you using Can I get your affiliate link to your host I wish my web site loaded up as quickly as yours lol
DreamHost. Speed is partly due to not being bogged down with ads, cookies, embedded tweets, etc;-)