Fed Up

Fed Up

Jim Bullard wants to "nip inflation in the bud before it gets entrenched in the economy." A good start would've been ending QE around this time last year and commencing rate hikes at the September 2021 meeting. Water under the bridge, I suppose. Instead, the Committee is engaged in a frantic effort to avoid being remembered for what, in retrospect, appears as a recklessly bizarre policy bent (figure below). As inflation accelerated, rates were left loitering at the lower-bound and the Fed b
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8 thoughts on “Fed Up

  1. H-Man, I have to say Warren can be abrasive. When she was running for president, I read her healthcare plan and thought it made a lot of sense especially on how it would be funded. But her questioning (really interrogating) leaves something to be desired.

    Meanwhile, JP appears to be trying to do something for everyone which in light of the task he is dealing with is an impossible chore. Right now it looks very ugly and there is going to be collateral damage. He should just accept it and put the peddle to the metal. As my mother use to say when she took out the dreaded iodine bottle to assuage my numerous cuts from battling with my brothers as a child, “It will hurt but it is good for you”.

  2. J Pow should be the one taking the fall, the Fed failed on every level and now they find themselves backed in a corner, with no good options. Too bad the lower income earners will again bear the brunt of the upcoming economic slowdown

    1. The problem with this contention, though, is that it’s by no means clear that inflation would be materially lower right now if the Fed had commenced hikes last year and stopped QE last summer. I said that would’ve been “a good start,” but I meant that more from a “at least we could say we tried” perspective. It’s very difficult to imagine that headline inflation would be substantially lower today assuming Fed tightening last year but assuming no change in the macro circumstances.

    2. The fed would at least be able say we did our job. Now, when things will get worse regardless, officials are eyeing an easy scapegoat who can only say we will try to do our job when being blamed.
      The politicians, EW and JP, aren’t helping.

  3. Congress had a role in creating this inflation dilemma. In fact, when we’re talking about general economy price inflation (as distinguished from asset price inflation), its not clear that Congress’ role wasn’t as large as the Fed’s. That’s on Warren and the other Senators.

    Congress could, even now, step in to protect the lowest income from the collateral damage they will suffer from the Fed’s blunt tools. If it won’t, that’s on Warren and the other Senators.

  4. Hindsight is 20/20. I thought the Fed should have ended Q/E sooner when liquidity came back into the markets in 2021, as that was part of its mission and they largely accomplished that goal in 2021.It would have given them optionality going into 2022. Rate hikes until the end 2021, in my mind clearly fall into the category of hindsight capital management. Nobody could have predicted the war in Ukraine- at least until perhaps Dec/January of the recent past. I am far from a hawk, but the US and the allies clearly could have done more to deter Russia going into Ukraine. A well timed joint military exercise in the Black Sea and on land with NATO would have been a good call. Putin is a bully, and a nut but he knows when he is outgunned. His nuclear bluff only came out later in desperation. I am not in favor of political hit jobs or anything- but I might make an exception for Putin. If he is not stopped now, he will go after Maldova, the Baltics, and elsewhere in the former Soviet empire. We should be reviving the nuclear deal with Iran – because that makes sense for us and them- not to mention unleash quite a bit of oil and maybe even gas. And I also think it will be a mistake to force Ukraine to do anything regarding lost territory. Russia should be forced to pay for rebuilding what they have done to that country.

  5. Bullard said the US “could suffer a decade of high and variable inflation” which would “mess up price signals in the economy.” “We don’t want to get into that situation,” he emphasized.

    Um, pretty sure we are already suffering the of messing up price signals Jim. Priceless.

    1. “We don’t want to get into a situation where something other than our policies is distorting price signals.”

      Miller’s Crossing: “Now if you can’t trust a fix, what can you trust? For a good return, you gotta go bettin’ on chance. And then, you’re back in anarchy. Right back in the jungle.”

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