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‘Very Good Moves,’ Very ‘Excited’ People
Jim Bullard did some talking on Friday and markets weren't amused.
He did some more talking on Mond
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Sorry to be slow. But I’m not sure I understand the market reaction to Bullard. I suppose it is comforting to think that in late 2023, he doesn’t think the Fed will be both raising rates and tapering. But if he forecast rate increases in late 2023, doesn’t that mean he expects tapering to be finished by late 2023, which means that it has to start relatively soon? And doesn’t it also mean that he thinks tapering will not be adequate to reign in inflation, which will create the need for rate hikes?
As noted: “…although this time around, it wasn’t clear that Bullard was the catalyst…”
I’ve been having a few disconnected thoughts on all this, what I think is appropriately termed an American version of Kremlinology. Here are a few aphoristically, without tying any of it together:
All technocratic institutions have become increasingly and perhaps irredeemably politicized, including the Supreme Court. There is little reason to think the FED is any different, so we should probably approach their individual views with the same lens. The power pendulum could also swing widely in short order. I think it’s clear now they are not exactly taking the “teamwork” approach. Best of luck deciphering political jockeying of bureaucrats from economic “science”, which is an oxymoron anyway.
The global economy is speeding down a structural crash course, and no progress, really, is yet being made anywhere to fundamentally change this. China has been consolidating power in order to attempt a difficult economic adjustment from their investment-driven model, but actually pulling off the transition the Sovets and Japanese failed at is an entirely different story. And we thought the FED was operating on a strategy to partially inflate away a historic debt bubble, 1940s style, but perhaps not. Perhaps they can’t even get out of their own way, much like the fiscal side of the government. Presumably they have this in common with the pre-revolutionary French aristocracy.
Ossified bureaucratic systems than cannot adapt and adjust grow ever larger to mask their structural fragility, until they collapse chaotically. Essentially every major developed country is in this position right now.
I absolutely agree. It’s a matter of how many generations are we away from the start of these collapses?
It was a negative to have to get out the fire hose. But that said, I am not sure what the alternative was? The Fed took a calculated risk and so far it has paid off- along with the generous fiscal aid. When you can borrow at low rates and a once in 100 years (but maybe its one in 25-50 years now) economic apocalypse happens do you sit on your hands and watch the system implode? Or do you take steps to cushion the blow? Getting out the fire hose is not plan A but when the house is on fire what are you supposed to do? We did the same thing in WW2 essentially and afterwards we were able to extricate ourselves. I would like to hear what the grand poobaahs like Ray Dalio and Lawrence Summers from their cushy perches would suggest? So far I think the right decisions have largely been made. Next steps is how to get off the drip of Q/E and low rates. But it is not going to be easy or cost free. It was a plan that was at least worth trying. I cannot forget seeing mile long lines of cars for food banks- “if they have no bread, let them eat cake”….is not a great alternative???
The only way to get off the drip is for fiscal to take the baton in a serious way. But, 13 years “into” the GFC and its depressionary aftermath, the government of the people still cannot even agree on basic things like that it’s a good idea to spend a few billion to hire blue collar workers and replace all the old lead pipes around the country.
It’s not that a majority of the people cannot agree to replace old lead pipes. It’s that we have a system of government that–at best–allows a minority to resist change, and–at worst–allows a minority to rule outright.
very good comment thread…