I’ve been predicting higher than expected inflation for years. Then, as soon as Fed chairman Jerome Powell told the world that an unexpected level of “transitory” inflation was here, I told you it wasn’t transitory. Turns out I was right on that one too. So how does one humble student of the global economy and finance beat the consensus of an entire Federal Reserve Board of Governors and their army of researchers ??
For one thing, I live in reality. Also, i’ve been watching the economy, the Fed and government long enough to block out all of the noise. I don’t know what goes on in the minds of the Federal Reserve Board, but I know that most of what we see and hear in the business, finance and economic world is pure noise. Behind nearly every click-bait headline is either a hidden agenda, a skewed worldview, a political axe to grind, or a school of economic thought to defend.
That said, I’m not some wonky, data-mining, hyper-intensive researcher, either. I’m just a guy who has several invaluable assets. Among them, common sense, a comprehensive knowledge of how the global financial system really works, and several tenets I adhere to when dissecting and interpreting data.
Now, predictably, the financial and economic world is highly critical of, and scrutinizing every move by the Fed, and will undoubtedly overreact to every announcement. This is foolish. Fed policy isn’t the only game in town. There’s also fiscal policy, consumer behavior and sentiment, and the ever-present threat of game-changing world events (see Covid-19).
These other factors have even more of an impact than the Fed does on the economy at any given time, but it was the decade-long and unprecedented intervention of the Fed coupled with out-of-control fiscal policy that led us to these high levels of inflation. Add in the effects of the pandemic and global supply chain disruptions, and you have a perfect storm for what is happening. Could it have been avoided? Absolutely. But that is for another blog post.
With everyone now second-guessing the Fed (eerily reminiscent of 2008), including former President Trump’s attacks on Jerome Powell in 2019, the tail is now wagging the dog. Wall Street hedge fund manager Bill Ackman rightly tweeted yesterday that the Fed should come out with a large interest rate hike out of the gate. I couldn’t agree more. But with both the Fed and President Biden caught off-guard and leading from behind on this issue, the result is pandemonium. The panicked armchair quarterbacking from across the economic and political spectrum will not cease.
Expect the “independent” Fed to be reigned in
Say hello to new levels of grilling by Senate committee members for their own political posturing. Say hello to political pundits, wall street loudmouths, celebrity billionaires and former heads of so-and-so *cough Larry Summers cough* saying how they would have done it better.
Almost certainly, none of them would have done better than Jerome Powell. This is because the Fed is run by a bunch of bankers. Those bankers know how to make money for only one group of people exceedingly well. Fellow bankers. Although the Fed has a dual mandate, “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” they’ve shown a strong inclination toward doing what wall street and the financial/economic elite tell it to do.
After this, those same actors will have an even louder voice and influence on the Fed, ending whatever independence the Fed was supposed to have in the first place. Thus, ending the Fed as we know it for the foreseeable future.
REconomix 