What has the Fed actually done to beat 40 year highs in inflation? Historically speaking: Very little to nothing.
Financial conditions remain in accommodative territory.
The Fed had not moved to restrictive financial policy as it did in the 70's and 80's.
Financial conditions remain in accommodative territory.
The Fed had not moved to restrictive financial policy as it did in the 70's and 80's.
But oh all those rate hikes this year? How does these match up to the Fed’s efforts in the 70’s & 80’s? It doesn’t. Not even close. In this context a 4% Fed funds rate would be a bare minimum to beat structural inflation.
What has the Fed actually done to remove the previous record liquidity injected? I submit: Nothing really:
We’re not even in restrictive territory, never mind neutral. In the 70’s and 80’s the Fed went into restrictive territory. Now we’re not even there yet. In summary: The Fed is still running loose monetary policy in context of 40 year highs in inflation.
And I submit, while headline numbers are rolling over this policy, if continued, will not bring inflation back down to 2%. It can’t.
So all the Fed has accomplished here is preside over another mad FOMO rally in asset prices which is brought about by even looser financial conditions since the summer. If the mission is to contain structural inflation this is just dumb.
So the Fed has a problem. How to get markets to take it seriously for clearly they aren’t. Is the Fed even serious? The data above suggests it is not, and hence Jackson Hole will be an important opportunity for the Fed to get its policy credibility taken seriously.
So if you believe that 40 year highs in inflation can ultimately be beaten & retuned to 2% inflation with a non restrictive monetary policy, no recession and that the steepest yield inversion since 2000 doesn't matter be my guest.
History suggests otherwise.
History suggests otherwise.
But of course there is always the possibility that the market is correct taking the cue from "neutral" Powell and the Fed was never serious to begin with, that all this talk and jawboning was just another array of bullshit that will be walked back at the earliest opportunity.
But that risks that inflation is not returning to 2% and that the asset price bubble/wealth inequality will get even larger ultimately resulting in our own 1929.
Why? Because this Fed has never shown a backbone to do what's needed. All they do is talk, but then cave to markets.
Why? Because this Fed has never shown a backbone to do what's needed. All they do is talk, but then cave to markets.
So yea, between now and the next Fed meeting the Fed needs to reveal its true nature: Are they serious or not.
Their policy so far does not prove they are serious.
They have to prove it. Or cave.
Markets are currently betting on the Fed caving & not being serious.
Their policy so far does not prove they are serious.
They have to prove it. Or cave.
Markets are currently betting on the Fed caving & not being serious.
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