This week the wheel hits the road for the Federal Reserve Open Market Committee. The editors of the Wall Street Journal declaim:
Government spending excesses in 2020 and 2021 played a role, but the Fed made all of that easier to pass by maintaining the policies it imposed at the height of the pandemic recession for two more years. Low interest rates make deficits seem more fiscally manageable than they really are. The Fed has continued to buy Treasurys and mortgage-backed securities even as inflation nears 8%—right up until this week’s meeting.
What went wrong? The Fed is supposed to have the world’s smartest economists and access to the best financial information. How could they make the greatest monetary policy mistake since the 1970s?
I disagree with their assessment that the Fed has erred through relying on Keynesian economics. Lord Keynes’s analysis still holds but in a globalized economy, at least in the form it has taken, deficit spending in the United States becomes Chinese factories rather than American ones. I seem to recall that the editors have supported globalization in the form it has taken.
The situation is less the fault of the Fed than it is of the Congress which has been feckless, incompetent, and, frankly, treasonous over a period of more than 30 years, Democratic majority or Republican majority.
Still, the Fed is in a difficult spot. If it raises interest rates, it’s likely to throw the U. S. economy into a recession. If it doesn’t raise interest rates, their actions will need to be greater and maintained longer.
Let me put it this way. Mr. Powell, do you want to throw the economy into recession now or in 2024 after a couple of years of double-digit inflation?







