Fed monetary policy

It depends on if it works or not. I’m certainly not a fan today.

 

Conventional wisdom is to raise interest rates above the rate of inflation, but the fed can’t (and won’t) take rates from near zero to 9+% overnight. So instead it’s death by a dozen increases that still haven’t brought interest rates to the rate of inflation and which don’t necessarily solve the problem today. But they are likely cratering the economy in the interim.

 

That's because of their tampering over the past 20+ years. When you look at interest rates over the past 20 to 25 years, we have been way too low for way too long. Add QE during the Great Recession and really we are in unknown territory. Everything they are doing today is not resulting in the outcomes they expected. I just think those results are slower to act, so expect high unemployment in 2023. If you think 2022 has been bad, 2023 is eagerly waiting at the door to say, "Hold my beer!"

 

I’ve said it before. but the causes of this inflationary round are largely outside of the norm. While the last stimulus in particular was a bad idea, Russia, supply chains, labor disruptions due to the pandemic driving up salaries etc, the only way to stop the inflation train is to run the economy into a ditch and greatly lower demand on pretty much everything.
When that happens, there will be more than one “expert” wondering if inflation was really the bigger risk.

 

They need to pause and see if the lagging indicators of inflation come down. I will say; however, that if you have a long term outlook the Fed is giving you an unbelievable buying opportunity.

Inflation will collapse and a recession will result. The Fed will then cut and we will go into a 10-20 year negative real interest rate environment. Assets will skyrocket. Strap in and enjoy the next big bull.

 

Seems like overkill when the fed now doesn't seem to be just happy with lowering inflation, but are also adding higher employment and "resetting the housing market" to their list. Who benefits from high unemployment? Just Employers?

 

The dual mandate (UE & inf) is a bad idea. inf should be their only concern. W/o the dual mandate, they’d’ve acted sooner

Real int rates are still neg. UE is too low.

The mkt is going down not so much due to a “cratering economy” as it is just using a higher rate to discount future expected cash flows. Very mechanical

 

Powell is a fool. Anyone with a lick of sense could see that the Covid response and then Biden’s spending and other policies would lead to this, but he kept singing the Transitory Song. He should have starting raising rates in late 2020 when it became apparent that no matter who won there would be huge Covid spending.

I didn’t think we would do worse than Greenspan in my lifetime but we certainly have.

 

the supply chain mess is unprecedented and yes there have been wars, but energy hasn’t been weaponized like this ever, other than the opec crisis in the 70’s and we got exactly what we have now. Rising rates, no real relief and a crappy economy.
As far as QE, I agree they could have stopped it much earlier but let the markets dictate far too much. And making a thing around tapering it now is a bit silly since mortgage loan volume has dropped significantly and corporate boring will follow with the rising rates anyway.
And it went nearly a decade and a half without causing an inflationary corrective recession, the difference was all the things that changed in the pandemic. The stimulus packages, energy shortages, supply chain disruptions etc. The timing wasn’t a coincidence. And you can’t fix the supply chain or Russia with interest rate hikes. You usually fix bubbles with hikes. Asset bubbles, debt bubbles, spending bubbles etc…this go round isn’t that. Other than maybe stocks, which this has effectively tamed.
So we will see where we are in a 6 months or a year, but my guess is that it won’t be good.
Jmo.

 

• Raising rates is a mistake.
  
• Inflation currently is caused by supply and labor shortages, not too much purchasing
• Inflation is transitory until labor and supply chains are corrected - transitory will be years (another 18 mos)
  
• GDP went backwards during the pandemic and that included government spending
• Destroying the house building market is a mistake which will trickle into rent
• Messaging from the administration is terrible and leading people to believing incorrect diagnoses

 

Fed policy in that time frame was inflationary. It was intentional to offset/prevent the deflation caused by the the housing bubble (one of Greenspan’s Bubbles).

Once housing was stabilized the fed should have been setting rates higher.

Doc is right about the dual mandate, there are too many potential conflicts between the two mandates for them to be effective. With the foolish government policies responding to Covid there was unemployment pressures created that they had to respond to. But once again, they went along for the ride with the foolish politicians and here we are.

 

In my opinion, the Fed is doing the “right” thing on rates, if you have a certain point of view. No doubt they are looking for certain indicators. Central Banks are looking for a softening labor market and jobs being shed coupled with personal bank accounts being depleted. Then all the surplus pandemic money under Trump and Biden will have found its home in the top 0.01% hands in the form of real assets — a further indenture of the common man and woman.

OT: I fear the Fed will announce a CBDC in the midst of this crisis. We will be confined to a tracking CBDC that constrains our freedom and anonymity of cash.

 

Water puts out most fires regardless of cause. Raising Int rates is the best course of action at the feds disposal.

 

Fed kept rates too low for way too long. Should have raised rates long before they did and now will raise them too high and kill the economy. Recession becomes self fulfilling, just a matter of how bad.