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Thread: The Fed Is Finally Seeing the Magnitude of the Mess It Created

  1. #1

    The Fed Is Finally Seeing the Magnitude of the Mess It Created

    Mises.org
    Ryan McMaken
    09/22/2022


    When asked about price inflation in his Sunday interview with 60 Minutes, President Biden claimed that inflation "was up just an inch...hardly at all." Biden continued the dishonest tactic of focuses on month-to-month price inflation growth as a means of obscuring the 40-year highs in year-over-year inflation. This strategy may yet work to placate the most ignorant voters, but people who are paying attention know that price inflation continues to soar.

    Thus, while Biden may be pretending that it's all no big deal, the Federal Reserve knows it better do something about price inflation which even the Fed now admits shows no signs of even moderating.

    Another 75 Basis Points

    On Wednesday, the Fed's Federal Open Market Committee announced that it will again raise the federal funds rate by 75 basis points. According to the FOMC's press release:

    Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. ...

    The Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.


    This is, by far, the most hawkish announcement yet out of the Powell Fed and no doubt reflects the fact the Fed has finally come to terms with the fact that inflation is not transitory—as the Fed long insisted—and is now impossible to deny. Last month, CPI inflation rose 8.2 percent, year over year, marking six months of year-over-year price inflation rates over 8 percent and near 40-year highs.



    Moreover, in its summary of economic projections, many FOMC committee members said they expected the target policy rate to reach or exceed 4.25 percent this year, and exceed 4.5 percent in 2023. Projections of economic conditions, however, continued to be relatively rosy with the report suggesting that GDP growth will stay above zero for the foreseeable future while unemployment maxes out at only 5 percent.

    In spite of two quarters in a row of shrinking GDP over the past year, and in spite of many indicators of brewing recession—such as falling home prices and an inverting yield curve—the committee is still clinging to the idea that the Fed can steer a "soft landing" in which inflation will be reined in with no more than some moderate slowing in economic growth.

    Although the recent hikes in the target fed funds rate suggest an increasingly hawkish position, the Fed nonetheless continues to take only the most tepid steps when it comes to reducing the size of the Fed's portfolio. Such a move would directly reduce the money supply by reversing QE, and it would also reduce asset prices by producing a small deluge of government bonds and mortgage-backed securities flowing back into the market.

    While the Fed is allowing some government bonds to continue to roll off the portfolio, we shouldn't expect any drastic moves here. It's been nearly four months since the Fed announced plans to reduce the portfolio, yet the actual reduction continues to be miniscule. Moreover, in Powell's press conference on Wednesday, when asked about selling off the Fed's mortgage-backed securities, Powell responded "It's something I think we will turn to, but that time — the time for turning to it has not come ... It's not close."

    Even now, after immense and rapid price inflation over the past two years, the Fed is still too afraid of fragility in the housing market to put much of its $2 trillion MBS portfolio back into the private sector.


    Continue to full article:

    https://mises.org/wire/fed-finally-s...ess-it-created
    “The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product, is a slave.”

    An Agorist Primer



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  3. #2

  4. #3
    Quote Originally Posted by PAF View Post
    Mises.org
    Ryan McMaken
    09/22/2022


    When asked about price inflation in his Sunday interview with 60 Minutes, President Biden claimed that inflation "was up just an inch...hardly at all." Biden continued the dishonest tactic of focuses on month-to-month price inflation growth as a means of obscuring the 40-year highs in year-over-year inflation. This strategy may yet work to placate the most ignorant voters, but people who are paying attention know that price inflation continues to soar.

    Thus, while Biden may be pretending that it's all no big deal, the Federal Reserve knows it better do something about price inflation which even the Fed now admits shows no signs of even moderating.

    Another 75 Basis Points

    On Wednesday, the Fed's Federal Open Market Committee announced that it will again raise the federal funds rate by 75 basis points. According to the FOMC's press release:

    Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. ...

    The Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.


    This is, by far, the most hawkish announcement yet out of the Powell Fed and no doubt reflects the fact the Fed has finally come to terms with the fact that inflation is not transitory—as the Fed long insisted—and is now impossible to deny. Last month, CPI inflation rose 8.2 percent, year over year, marking six months of year-over-year price inflation rates over 8 percent and near 40-year highs.



    Moreover, in its summary of economic projections, many FOMC committee members said they expected the target policy rate to reach or exceed 4.25 percent this year, and exceed 4.5 percent in 2023. Projections of economic conditions, however, continued to be relatively rosy with the report suggesting that GDP growth will stay above zero for the foreseeable future while unemployment maxes out at only 5 percent.

    In spite of two quarters in a row of shrinking GDP over the past year, and in spite of many indicators of brewing recession—such as falling home prices and an inverting yield curve—the committee is still clinging to the idea that the Fed can steer a "soft landing" in which inflation will be reined in with no more than some moderate slowing in economic growth.

    Although the recent hikes in the target fed funds rate suggest an increasingly hawkish position, the Fed nonetheless continues to take only the most tepid steps when it comes to reducing the size of the Fed's portfolio. Such a move would directly reduce the money supply by reversing QE, and it would also reduce asset prices by producing a small deluge of government bonds and mortgage-backed securities flowing back into the market.

    While the Fed is allowing some government bonds to continue to roll off the portfolio, we shouldn't expect any drastic moves here. It's been nearly four months since the Fed announced plans to reduce the portfolio, yet the actual reduction continues to be miniscule. Moreover, in Powell's press conference on Wednesday, when asked about selling off the Fed's mortgage-backed securities, Powell responded "It's something I think we will turn to, but that time — the time for turning to it has not come ... It's not close."

    Even now, after immense and rapid price inflation over the past two years, the Fed is still too afraid of fragility in the housing market to put much of its $2 trillion MBS portfolio back into the private sector.


    Continue to full article:

    https://mises.org/wire/fed-finally-s...ess-it-created
    A couple months back I posted that I thought maybe the Fed would re-launch QE while keeping rates high. I've always thought that QE was even more potent than adjusting rates. I've been seeing this mentioned over at zerohedge lately. Now the Bank Of England has done just that. They re-started QE but haven't dropped rates. This is just a guess but I think QE plus higher rates might buy them some more time until the inevitable.

  5. #4
    Quote Originally Posted by Madison320 View Post
    A couple months back I posted that I thought maybe the Fed would re-launch QE while keeping rates high. I've always thought that QE was even more potent than adjusting rates. I've been seeing this mentioned over at zerohedge lately. Now the Bank Of England has done just that. They re-started QE but haven't dropped rates. This is just a guess but I think QE plus higher rates might buy them some more time until the inevitable.

    The insane thing about all of this is how much worse every other central bank is relative to the Fed. The Fed was hugely wrong in not tightening at the end of 2020 after the recession ended after you had the biggest M2 increase in history. Now they went the other way and tightened faster and more aggressively than Paul Volcker after just ending QE in the spring which is going to cause a deflationary depression if they actually follow through on what they say (which they will not). But all the while this is going on the European Central bank and the Bank of England just now started tightening when inflation is like 20%.

    As a result they are having a currency crisis while the dollar is the strongest it has ever been, even though the Fed was still terrible in responding to inflation.

  6. #5
    Quote Originally Posted by Krugminator2 View Post
    As a result they are having a currency crisis while the dollar is the strongest it has ever been, even though the Fed was still terrible in responding to inflation.
    As compared to other currencies, I presume.

    As far as strength goes, one very well placed silver dollar could short out the Fed's entire computer system.
    Quote Originally Posted by Swordsmyth View Post
    And?
    Dems cheat.
    Trump stopped them cheating.

    A clear case of Liberty preserving authoritarianism.

  7. #6
    Quote Originally Posted by Krugminator2 View Post
    The insane thing about all of this is how much worse every other central bank is relative to the Fed. The Fed was hugely wrong in not tightening at the end of 2020 after the recession ended after you had the biggest M2 increase in history. Now they went the other way and tightened faster and more aggressively than Paul Volcker after just ending QE in the spring which is going to cause a deflationary depression if they actually follow through on what they say (which they will not). But all the while this is going on the European Central bank and the Bank of England just now started tightening when inflation is like 20%.

    As a result they are having a currency crisis while the dollar is the strongest it has ever been, even though the Fed was still terrible in responding to inflation.
    I agree that the other major central banks are in even worse shape.

    I don't agree that Powell is more aggressive than Volker. Volker raised rates to 20%, Powell to 3.25%. It's not even close. Powell's monetary policy is still highly stimulative.

    At this point, even with no further tightening, I think we're headed for depression and financial crisis.

    I believe the mistake was printing money in the first place, there's no easy way out because of all the debt we've accumulated. If there was a magical way to a soft landing, every country could be rich. Just print a few trillion dollars, pass it out to everyone and use the magic technique to fix any problems. Then repeat.

    My guess is at some point the Fed does a surprise pivot just like the BOE and just like the Fed did back in 2019. I'm guessing it won't be the markets falling but some sort of financial crisis with bonds. There's way too much debt to handle rates this high. I think inflation is going to keep coming down until the Fed pivots, maybe to 4-5% but after the pivot it'll skyrocket to new highs. I expected my investments to go down while the Fed is tightening so it's not too painful. I just know the Fed is going to pivot and I'm patiently waiting for it.

  8. #7
    The fed isnt really capable of contributing anything positive to america. Makes it like most other arms of fed gov.
    Do something Danke

  9. #8
    Quote Originally Posted by oyarde View Post
    The fed isnt really capable of contributing anything positive to america. Makes it like most other arms of fed gov.
    I would love to know what goes on behind the scenes between the fed and the white house. I'd like to know how far the arm twisting goes.



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