The Fed Promises More Dollar Destruction
The Federal Reserve has potentially had the most memorable year in its more than a century–long history. What started out as a year of “Will they or won’t they cut interest rates?” blossomed into a time of slashing rates to near zero, unleashing unlimited quantitative easing, purchasing corporate and municipal bonds, and growing its balance sheet to a record high. Now, as the economic consequences from the covid-19 pandemic linger, the Fed has taken advantage of the crisis to modify its policies to be more expansionary—which will inevitably blow bubbles and wreak havoc on households everywhere.
The Jackson Hole Shift
Fed chair Jerome Powell delivered prepared remarks during the annual Jackson Hole symposium. Powell virtually announced a historic policy shift in the way the US central bank approaches inflation. The standard policy had been that when inflation climbs, the central bank raises interest rates to curb it, much like what happened in the 1980s. The Fed is no longer utilizing this strategy. Instead, it is damn the torpedoes and full speed ahead.
According to “robust adjustments” to the Statement on Longer-Run Goals and Monetary Policy Strategy, the Powell-led institution will embrace average inflation targeting. This will enable the Fed to let inflation run above the 2 percent target rate after periods when it has come in below that level. Now that the Fed no longer feels compelled to raise rates when inflation surges or the unemployment rate drops, is there a specific number the Eccles Building needs to anticipate? No. Powell stopped short of listing what jobless and inflation rates he would prefer to see, choosing to allow the market to determine what is too much inflation and what is full employment
Article from Mises Wire