Jerome Powell’s statements have become increasingly irrelevant. We can all see what is going on. There is only one path for the Federal Reserve at this point. That path is to suppress interest rates for as long as they can. For years now the Federal Reserve has been underreporting inflation.
The Federal Reserve really does not have a lot of wiggle room on interest rates any longer. As long as the big debtors can keep the price of servicing their debt low, then all is well. This is why interest rates have never gotten back to pre-Great Recession levels.
After the 2016 election loosed more cash into the economy through enormous corporate tax cuts, the markets got overheated. The Fed tried to pull some debt off their books then. This is what you are supposed to do during an economic expansion. However, the reaction of the market to a belated but reasonable tightening on interest rates was extreme in late 2018.
This is where the Federal Reserve really showed itself as no longer an independent entity. The Federal Reserve actually cut rates during an economic expansion! The markets started to “melt-up” in 2019, and the Trump administration cheered Jerome Powell’s actions. Frankly, everyone EXCEPT bond holders were probably happy with Jerome’s cuts.
Every single economic principle I ever learned about capitalism and monetary theory says this will end badly, but WHEN? It seems clear the Federal Reserve knows inflation is coming. The Federal Reserve also knows there is NOTHING THEY CAN DO ABOUT IT. The Federal Reserve has no bullets in its gun.
This is why Jerome Powell keeps talking about full employment as well as the central bank’s altruistic desire to facilitate money printing…FOR THE PEOPLE! Since when is the central bank’s role to make sure everyone has a job? This sounds suspiciously like the old Soviet Union. It is fascinating!
I mean I have been accused of being a communist many times. When you work on something called libertarian-socialism, you half expect it…at least from Americans. In any case, I can tell you Jerome Powell is NOT a communist.
He is a man in a very bad position. A man who knows the future is out of his control. Jerome Powell is delivering a narrative about what a compassionate institution the Federal Reserve is to ALLOW inflation to “…run a little hot.”
This presumes the Fed has some control. This is laughable. The Federal Reserve delivered a “skewed narrative” for why inflation has been so low for so long because it justified suppressing interest rates. They had no choice given the level of debt so they “undermeasured” and told us what we wanted to hear.
Now, the prognostications from the Federal Reserve are there to serve a high inflation future. He is explaining why inflation is not going to be in the control of the Federal Reserve. He is explaining why they are going to sit back do nothing. He is prepping everyone for why they will “…let it run hot…” WHEN THEY SHOULD tamp it down. Jerome Powell knows he cannot control whatever inflation comes, so he is delivering this narrative of compassion.
This is the reason why Jerome Powell sounds like a communist. He is just trying to spin up some kind of story about why everyone is just going to have to sit back and HOPE things settle down. This was always the thing about communism, a lack of credibility. This story about the state providing a job for everyone being the best way to run an economy sounds compassionate, but is it wise and practical? This story was always a fantasy. This is why Jerome Powell sounds like a communist. He isn’t. He is just a very scared man.
Disclaimer: The opinions in this article belong to the author alone. Nothing in this article constitutes investment advice. Please conduct your own thorough research before making any investment decisions.