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?
“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.”
The box.
“If it doesn’t raise interest rates, their actions will need to be greater and maintained longer.”
We’re gonna need a bigger box.
“The Fed is supposed to have the world’s smartest economists and access to the best financial information.”
Snicker. A certain M Friedman wrote a book blowing that notion up.
Which is why this is likely:
“Mr. Powell, do you want to throw the economy into recession now or in 2024 after a couple of years of double-digit inflation?”
And perhaps the double whammy – stagflation.
PS – There is no reason US deficit spending means the manufacturing base must migrate away. That’s a globalist political posture and large corporate phenomenon.
Shorter: John Taylor has been right all along. A technocratic Fed can be replaced by an algorithm. Otherwise the temptation for the Fed to be political/ideological is irresistible.
It’s not even globalist. It’s BANANA of a weird, political type. Heavy industry doesn’t produce carbon emissions if it can’t be seen in New York, Los Angeles, and Washington, DC.
“Heavy industry doesn’t produce carbon emissions if it can’t be seen in New York, Los Angeles, and Washington, DC.”
Hold on there, partner. That’s true isn’t it? I mean, that’s why they are begging Saudi Arabia and Venezuela to pump the oil. Right?