If You’re Just Now Getting Mad at the Fed, You’re Much Too Late
Last week, Jerome Powell insisted that he’s not going to change his mind on allowing interest rates to rise, while allowing the assets on the Fed’s portfolio to (very slowly) roll off the balance sheet. At the Federal Reserve’s annual Jackson Hole conference conference, Powell’s speech lasted only ten minutes. Powell had a fairly simple message. He admitted that “high inflation has continued to spread through the economy” and also admitted a single month of falling month-to-month CPI inflation is hardly enough when year-over-year CPI inflation growth continues to exceed 8 percent. He then insisted that a neutral policy stance is “not a place to pause or stop” and that the Fed would embrace “a restrictive policy stance for some time.”
The Fed’s idea of “restrictive” policy, of course, isn’t very restrictive at all, and usually just means “less expansive than usual.” Powell’s speech, far from being hawkish in any meaningful sense, nonetheless signaled enough of a departure from the usual money-pumping posture to send the Dow down more than 1,000 points the same day while investors and Wall Street hacks immediately got to work complaining that the Fed wasn’t going to “pivot” quickly enough.
The “pivot” narrative has long been the preferred narrative on Wall Street. Having become addicted to Fed-provided easy money-policies, Wall Street is now mostly just about cheering on monetary stimulus at the slightest sign of trouble. When the easy money flows, asset prices surge, and the markets go up. Since 2010, this has been the primary game for big investors. Keeping an eye on market fundamentals is so pre-2009. What matters now is Fed stimulus, always and forever.
Of course, once price inflation rates started coming in at multi-decade highs, even Wall Street admitted that 40-year highs in price inflation are a problem, and that the Fed will have to ease off the easy money for a little while. But the same narrative also assumes that as soon as any weakness shows up in hiring or home prices, or any other economic indicator, the fed should “pivot” to embracing easy money once again.
Many critics of the Fed’s ultra-slight hawkishness, for example, expressed rage on Twitter and in financial blogs when Minneapolis Fed president Neel Kashkari said he was “happy” that markets went down in response to Powell’s sp
Article from Mises Wire