real inflation in the U.S. economy. S
peaking to lawmakers in a congressional hearing last month, the Fed Chairman repeated his now-familiar refrain… doubling down on his view that there is no
“I graduated from college in 1975,” he told inquiring lawmakers. “I had a front-row seat,” he said, referring to the devastating inflation that plagued the U.S. economy during the Carter years... “I don’t expect anything like that to happen,” he told them, adding that the double-digit price increases of the 1970s would be “very, very unlikely.” Powell explained that recent inflation has everything to do with “this unique historical event that none of us has lived through before” and nothing to do with inflation spiraling out of control. And this is the reason he’s watching employment measurements instead of inflation measurements to determine when we need to raise rates and when he needs to scale back on his $120 billion per month bond-purchasing extravaganza. You got to give Powell points for his consistency if nothing else... He repeatedly keeps telling us that this inflation is just temporary. It’s amazing how wedded our Central Bankers can become to a particular viewpoint. It may be this conviction to a belief system (in this case “no inflation”) that causes them to repeatedly fail the American public by over or underreacting in almost every economic challenge. The Fed has a nasty habit of being a day late and a dollar short... For example, former Fed chairman Alan Greenspan was late to loosen rates ahead of the disaster that became the
systemic financial crisis of 2008. This move (or lack thereof ) exacerbated the problem, as overly generous liquidity in the prior years left interest rates too low for too long, creating an easy money environment that led to overly aggressive lending strategies. This signature Fed move is par for the course for the central bank, and savvy investors learn to take the bad with the good and vice versa – after all, the Fed is only human... And on the plus side, since this mess began unfolding in March 2020, the Fed did an excellent job stepping up to the plate in a major way. It lowered rates and began a liquidity program by purchasing bonds, thereby helping to keep rates low. In sum, the Fed – along with multiple rounds of coronavirus stimulus checks and generous unemployment packages – helped to mitigate a full-on economic crisis that could have, if left unchecked, devastated the economy for years to come. A round of applause is in order... a standing ovation, even. But now, it’s time for everyone to sit down. The coronavirus crisis in the U.S. has come and gone. We fought the war with COVID-19, and we won. The economy has reopened and there are “help wanted” signs on just about every street corner.
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July 2021
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