Why This is the Most Reckless Fed Ever, and What I Think the Fed Should Do to Reverse and Mitigate the Effects of its Policy Errors

The Fed’s credibility shifted from Inflation Fighter under Volcker to Wealth Disparity Creator and Inflation Arsonist under Powell. And everyone knows it.

By Wolf Richter for WOLF STREET.

As stunningly and mindbogglingly bizarre as this sounds, it’s reality: Inflation has been spiking for over a year, getting worse and worse and worse, while the Fed denied it by saying, well, the economy is recovering, and then it denied it by saying, well, it’s just the “base effect.” And when inflation blew out after the base effect was over, the Fed said it was a “transitory” blip due to some supply chain snags. And when even the Fed acknowledged last fall that inflation had spread into services and rents, which don’t have supply chains all over China, it conceded that in fact there was an inflation problem – the infamous pivot.

By which time it was too late. The “inflationary mindset,” as I called it since early 2021, had been solidly established.

I’ve been screaming about it for over a year. By January 2021, I screamed that inflation was spreading broadly into the economy. By February 2021, I screamed that inflation was spreading into the service sector. And I screamed about inflation in the transportation sector. By March 2021, it was obvious, even to me, that “something big has changed,” based on the fact that consumers were suddenly willing to pay totally crazy prices for used cars, when many of them could have just driven what they already had for a while longer, which would have brought the market down, and with it prices.

But no, consumers suddenly started paying whatever. And I documented how companies were able to pass on higher prices because suddenly everyone was willing to pay whatever. And by April, producer prices were blowing out, and companies were able to pass them on, no problem. And in April, I started using a term for this phenomenon: the “inflationary mindset” and how it had suddenly become established.

By that time in April, it was clear beyond a reasonable doubt that inflation would become a massive problem because the inflationary mindset had been established with companies paying higher prices, confident they could pass them on, and with consumers willing to pay whatever.

And all along – despite our screaming in the trenches – the Fed stuck to its “transitory” nonsense, while continuing to throw huge quantities of gasoline on the already raging fire, by interest rate repression and money-printing, as only a true inflation arsonist would.

And then when the Fed finally could no longer brush it off in the fall of 2021, as inflation continued to get worse and worse, the Fed made its infamous pivot, verbally. But it continued to pour the gasoline on the fire.

The Fed eventually started to slowly dial back the amount of gasoline it was still pumping directly on the fire: It reduced QE gradually instead of ending it cold turkey right then and there when it did the pivot. And it put rate hikes on the table for 2022, instead of hiking them on the spot. And inflation got worse and worse.

Policy error after policy error – with massive consequences. QE is just now winding down, but the Fed’s policy rates are still at near 0%. And CPI inflation has shot up to 7.9%.

But a lot of individual categories of prices have totally blown out, particularly those where the less well-off spend a lot of their money. For example:

  • Used Cars: +41.2%
  • Gasoline: +38.0%
  • Gas Utilities: +23.8%
  • Beef and veal: +16.2%
  • Pork: +14.0%
  • Poultry: 12.5%
  • New Cars: +12.4%
  • Eggs: +11.4%
  • Fresh fruits: +10.6%
  • Fish and seafood: +10.4%
  • Electricity: +9.0%

The most reckless Fed ever.

So now we have this crazy situation, where the Fed is still repressing the effective federal funds rate (EFFR) to 0.08% while CPI inflation is raging at 7.9% and will likely go over 8% soon.

Back in the days of high inflation – the 1970s and 1980s – there were moments when CPI inflation was at 7.9%, crossing it either on the way up or crossing it on the way down.

But at those moments when CPI was 7.9%, the EFFR was:

  • Oct 1973, inflation shooting higher, EFFR = 10.8%
  • Sep 1975, inflation declining: EFFR = 6.2%
  • Aug 1978 inflation shooting higher: EFFR = 8.0%
  • Feb 1982, inflation declining: EFFR =14.8%

And this is what this absurdity looks like, going back to 1955, when the EFFR data begins. Red line = CPI; purple line = EFFR. This chart documents why this is the most reckless Fed ever:

The “real” EFFR: nothing ever came close in recklessness. The EFFR minus CPI produces the inflation adjusted or “real” EFFR. The real EFFR is now -7.8%, the lowest and worst in recorded history, another chart that documents why this is the most reckless Fed ever:

The Fed’s credibility as inflation arsonist is going to be tough to change.

The Volcker Fed, back in the early 1980s, earned the credibility as inflation fighter. This has benefited the economy for nearly 40 years. It even got the Fed through the money printing spree during and after the Financial Crisis without triggering rampant inflation of the type we now have.

But by pumping large amounts of gasoline on already raging inflation for over a year – when lots of people, including me, were screaming about it because it was so obvious – the Fed has wiped out its credibility as an inflation fighter, and has instead become the world’s biggest inflation arsonist. And everyone knows it.

No one is going to believe when the Fed says it’s serious about tamping down on inflation. Inflation is in part a psychological phenomenon – the “inflationary mindset,” as I call it – and the Fed has blown its credibility. So good luck dealing with it.

The Fed’s meme that money-printing helps the working people turned out to be BS.

The Fed has been couching its crazy monetary policies and refusal to deal with inflation as way of helping the lower end of the labor market. But that is patently BS. And the Fed knew it. This blowout of inflation has resulted in hourly earnings falling behind CPI inflation for the 11th month in a row, compared to the prior year, starting in April 2021.

In other words, “real” earnings declined for the 11th month in a row, thanks to the Fed’s raging inflation – despite big wage increases and the tightest labor market in our generation. Inflation hits those people the hardest that make their living from actual work, rather than those who are sitting on a pile of assets.

That is the price of interest-rate repression and money printing, and the price is being paid by people who’re working for a living.

But wait… there was a small group of huge beneficiaries from the Fed’s policies.

The Fed has long had as its official monetary policy goal the “wealth effect.” The wealth effect has been promoted in numerous Fed papers, including by Janet Yellen in 2005, when she was still president of the San Francisco Fed. Under this doctrine, the Fed used monetary policies (interest rate repression and QE) to inflate asset prices that make asset holders (the already wealthy) even wealthier. The idea is that the even-wealthier spend a little of this money, and that this will trickle down somehow.

What this wealth effect doctrine has accomplished – and with exponential efficiency during the crazed QE and interest rate repression since March 2020 – is the greatest wealth disparity ever.

My “Wealth Effect Monitor” is based on the Fed’s data about household wealth (defined as assets minus debts) by wealth category for the “1%,” the “2% to 9%,” the “next 40%,” and the “bottom 50%.” My Wealth Effect Monitor takes the Fed’s data down to the per-household level.

What the Fed should do now to mitigate the effects of its reckless policy errors.

The Fed cannot undo the enormous policy errors it has committed over the past two years. But it can end them going forward, it can mitigate the devastating effects now playing out in the economy, and it can prevent those effects from spiraling totally out of control.

So this isn’t what the Fed should have done – that’s a different story – but what it should do now, starting after its meeting on March 16:

Start unloading the balance sheet (Quantitative Tightening) now at a rate of something like $200 billion a month, by both, allowing all maturing securities to roll off without replacement, and by selling outright the securities with the longest remaining maturities, such as 30-year bonds with 29 years left to run; they need to go first.

Run QT in the foreground, with the stated and explicit purpose of driving up long-term yields. Running QT in the “background” on automatic pilot, as Powell said, is just goofy. The purpose of QT is to push up long-term yields, just as the purpose of QE was to push down long-term yields. The purpose is to steepen the yield curve while the Fed is hiking short-term rates.

Specifically, sell MBS outright. MBS have maturities of 15 years and 30 years. Holders such as the Fed receive pass-through principal payments from mortgage payments and when mortgages are paid off, such as in a refi or the sale of a home. In a housing market with declining mortgage rates, refis and home sales are booming, and these pass-through principal payments turn into torrents, and the MBS on the Fed’s balance sheet would fall rapidly.

But in this rising interest rate environment, the housing market slows, and refis slow, and the pass-through principal payments slow to a trickle. This is why the Fed should sell its MBS outright to get them off the balance sheet entirely in a couple of years.

Time the market with the sales of securities: Every time long-term yields decline a little, use the opportunity to sell even more securities. Any good investor trying to unload debt securities would do that. This would keep the yield curve steep.

Raise short-term rates by 100 basis points on March 16, to communicate in a way that everyone would understand that the Fed is serious about ending its reputation as inflation arsonist and regaining its ruined credibility as inflation fighter. Then continue raising rates at smaller increments, such as 50 basis points at every meeting this year. That would bring its policy rate up to about 4.5% by year-end, with inflation likely over 8%.

Front-loading the rate hikes and breaking that “inflationary mindset” might help get inflation back down sooner. Dilly-dallying around will drag this out and let inflation get worse and worse, with higher and higher interest rates needed to have any impact on inflation.

Officially abandon the “Fed put.” Let markets find their own way. Markets are good at that. Sell-offs bring a much-needed cleansing of excesses and lots of opportunities. Markets need to be allowed to function properly as markets do.

Remove QE from the toolbox once and for all. QE is a destructive policy that creates wealth disparity, asset price inflation, and ultimately consumer price inflation. Its effects on the real economy are minimal. It needs to be thrown in the trash.

Instead, use the Standing Repo Facilities if the Treasury market locks up. The Fed has likely for this purpose re-established the repo facilities in 2021, after shutting them down in 2008. No QE needed.

Allow debt restructurings and bankruptcies to resolve excessive debts in the economy. If companies have too much debt, they need to restructure this debt at the expense of investors. This is a healthy essential process of capitalism. For two recessions in a row, the Fed has stopped that process from playing out. Now there are huge excesses, further fueled by years of ultra-low interest rates. US laws and markets are well-suited to sort this out.

But instead, Powell will try to engineer a soft landing.

Yup, the Fed is going to raise rates and it’s going to reduce its balance sheet. But they will pussyfoot around and insist on being able to achieve a soft landing by not doing enough, and the longer they pussyfoot around, the more entrenched inflation will get, and the longer it will drag on, and the harder it will be to dislodge it, and the longer the Fed will ultimately struggle to contain it.

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  363 comments for “Why This is the Most Reckless Fed Ever, and What I Think the Fed Should Do to Reverse and Mitigate the Effects of its Policy Errors

  1. Julius says:

    Wolf Richter for fed president. Please someone nominate him!!!

    • Wolf Richter says:

      LOL. No one needs to worry about that. I’m a foreign-born American, forever unable to run for Prez, thank goodness :-]

      • Wisdom Seeker says:

        Not “US President”, Fed President! You should have Powell’s job Wolf.

        The requirements for Fed President (Chairman) don’t include citizenship. It appears the main rule is that you can’t be a bank shareholder or employee etc. (12 U.S. Code § 242, 244 etc).

        And looking globally, Central Bank heads don’t even need to be citizens (e.g. Mark Carney). Says a lot that someone can be chosen to run a nation’s central bank without even having that nation’s interests at heart…

      • Wolf Richter says:

        OOPS, I misread. Didn’t see “fed.” Apologies.

        Right now, Fed president is probably the worst job in the world to have.

        • YuShan says:

          People of true character would take that job and do what is necessary. They will get recognition years later (see Volcker). Unfortunately, Powell doesn’t have what it takes.

        • JayW says:

          I would gladly switch places with him:

          $50M net worth

          Just ride the 2nd term out and retire to China.

        • intosh says:

          Wolf as fed president makes perfect sense… for the Fed cronies. Bring in someone from “outside” to do the dirty job of fixing the mess and, in the process, make himself enemy of the elite (and to the public*, whose opinion is influenced by the elite). The fed cronies get away unscathed.

          * “consumers suddenly started paying whatever.” That statement is key. They don’t mind paying more; what they do mind is stock market and assets bubbles crashing.

      • Alku says:

        Does FED chair have to be US born?

        • Wolf Richter says:

          No, I misread the comment :-[

        • max says:

          “The Fed’s credibility as inflation fighter.”

          If your starting point is wrong it’s like taking a wrong turn and just keeping going – then the further you travel in life, the further you become distanced from the truth.

          End the Fed is a 2009 book by Congressman Ron Paul of Texas. The book debuted at number six on the New York Times Best Seller list and advocates the abolition of the United States Federal Reserve System “because it is immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty.”

      • Gattopardo says:

        You can’t run for POTUS but you could be Fed president, no?

        Wolf, I’m with you on all of this. We know, though, that this list would hit the economy hard enough to create streams of new legislative acts with all kinds of stupid names using words like “American” and “Rescue”. To us, it would be merely the price we should have paid the covid struck but refused to do so at the time. Unfortunately everyone else would look at it as unfair and…crazy.

        In short, most people will take inflation over recession and collapsing markets.

        • Wolf Richter says:

          Inflation hits everyone (330 million people), and it hits the lower 200 million the worst. A recession will only hit the people who lose their jobs. Crashing markets will only hit the 10% that have any significant amounts in the markets. That’s why inflation is absolutely the worst.

        • Wisdom Seeker says:

          @Gattopardo: “most people will take inflation over recession and collapsing markets.”

          It’s not an either-or choice this time. We already have inflation AND collapsing markets. No doubt recession and unemployment are coming soon too.

        • historicus says:

          “In short, most people will take inflation over recession and collapsing markets.”
          Disagree
          First, in 2018 we had 2% inflation and 2% Fed Funds…..and the economy did not go to recession.
          Second, markets that have run too far, have pumped PE ratios to new heights SHOULD not be defended by monetary policy
          And finally, lets remember, the FED intentionally FORCED (their word) investors to take on more risk as they flattened the yield curve. This means the FED altered risk/return ratios and PE ratio normalities. They have no business doing such…and now the cattle drive they conducted is heading to the slaughter house.

        • Jackson Y says:

          A 10% correction in the Dow Jones is hardly “collapsing markets.” And the continued strength of the labor market, retail sales, etc. show the stock market isn’t the economy.

          During the ugly 2000-2003 bear market, unemployment never exceeded 6%.

        • Jake W says:

          that’s the crux right there. the idea that we were entering a new “roaring 20s” and that the economy was “booming” was nonsense in that we actually did suffer economic damage from covid (whether from the virus or from the government response to it is irrelevant). you don’t “come out stronger” when you haven’t increased production at all, like during ww2, and only printed and borrowed to fund consumption.

          consumption does not a strong economy make.

          really, we should have paid the price for the past 6 or 7 years, but it was especially true that we should have paid it during covid. instead, the governments printed and dumped trillions onto the economies, and made it look like things were healthy. they weren’t, and they aren’t.

        • Asul says:

          I have to agree with Gattopardo. The FED is not willing to have a recession, but rather prolonged inflation, because it fears that the recession will be way worse than the 2008 recession. And probably the reason is 30 trillion debt … and all its ramifications (unicorn companies etc.).

        • Gattopardo says:

          I don’t disagree with any of the responses to my post. I would personally take a recession and all of its consequences versus inflation anywhere near what we have now. And I would have greatly preferred that we endure the hardships of covid when they struck rather than deferring (and compounding) them.

          What I don’t buy is that the Fed is some evil org out to get us or enrich banks, etc. They aren’t stupid either….they’re making the tradeoff that most of us here on this site don’t like — inflation over recession/etc. They know at least as much as we do, they know what they’re doing, and they are making a bet that this route is better. I’d take my chances with the Wolf Plan.

        • Wolf Richter says:

          Gattopardo,

          “tradeoff that most of us here on this site don’t like — inflation over recession/etc”

          That’s a red herring. There is no such trade-off. Low inflation doesn’t trigger a recession. What might trigger a recession is if you wait too long and inflation gets out of hand, like right now, and then if you let it further get out of hand, and then if you finally crack down on inflation because it’s eating everyone’s lunch, well, then you might get a recession.

          But if you wait too long and don’t crack down, you might also beforehand get a recession with high inflation — and that’s an even worse scenario.

          The Fed has already pissed away all the good options.

        • El Katz says:

          Gattopardo…..

          Dead wrong….. “most” people won’t. Just most of those invested in the market.

        • max says:

          Idols for destruction by Herbert Schlossberg

          If the state were the only beneficiary of inflation, it could not be continued for long.
          A society that inflates its currency tampers with a moral value.
          … it is an error to think that venal officials simply take advantage of a helpless public. The willingness of government officials to buy support from voters with printing press money cooperates with the willingness of the citizens to profit from it. Those dishonesties combine to foster a moral climate in which other excesses take place.
          As George Lukacs put it: “The inflation of society ran ahead of the inflation of money.”13 The moral state-of-affairs gives rise to the policy.

          Inflation is both a cause and effect of moral decline. The citizens like it because they perceive that it gives them something for nothing. Like many of the policies of the modern social democracies, it transfers wealth from some people to others. People will tolerate increasing prices because their paychecks seem to increase apace. The value of their houses and other hard assets goes up, while their load of debt becomes less burdensome. The benefits they receive are visible—the state makes certain of that, since if they were not visible nobody in the state apparatus could profit by providing them—while the costs are as invisible as political and bureaucratic genius can make them. As long as people think they are advancing economically, the pressures to continue inflating outweigh those for stopping. When a society becomes pragmatic, the moral considerations seem less important than the economic ones.

      • the real truth says:

        Bri I’ve been screaming this for 25 years this isnt just a recent issue. The city if living going up wealth disparity these have been issues since the early 80s when I was in elementary school n tbh it’s sad I knew what u all went to school for at 7 years old. Buy yeah go on keep thinking ur the ones lmmfao. I could fix all our problems in a year or less.

        • RepubAnon says:

          Agreed. The current mess was started when Alan Greenspan decided to cut interest rates to near zero and promote massive tax cuts to help George W. Bush and the Republicans win the next elections. This, coupled with de-regulating the financial markets, boosted the economy in the short-term, but the resulting scams led to the Great Recession.

          Successive Fed Boards have kept interest rates low to try to help the economy recover from Greenspan’s damage. it didn’t help that President Obama kept on the same set of Wall Streeters that had served up the Great Recession.

          What we need here is massive re-regulation of the financial markets. Tax policy can hekp as well – boosting the definition of long-term capital gains to, say, 5 years would help reduce speculation in many areas. Once enough people again see the stock market as a means for investing rather than a casino, we can stop reliving the boom-bust cycles so prevalent in the Gilded Age.

      • Anon1970 says:

        Henry Kissinger had a much thicker accent than Wolf but served in the US army as a translator/interrogator during WWII, then later as National Security Adviser AND then as an effective Secretary of State. He is the guy who negotiated the peace treaty to get the US out of Vietnam. He turns 99 later this year.

        • Bobby says:

          Only the good die young

        • LK says:

          …OK? He sure was “effective.” Can’t say I have as glowing of an opinion of Kissinger as your comment suggests.

        • Anonymous Coward says:

          Let’s not forget that Kissinger was an effective war criminal too.

        • Freewary says:

          Yeah he did such a great job negotiating US exit from Vietnam he avoided chaotic helicopter evacuation from Saigon and refugee crises, right?

      • Nilesh Kucheriya says:

        Inflation will become problem when foreign countries stop selling goods in exchange for dollars, for now USA government can simply print more money and give it away to people for purchasing products.

        So don’t worry, things are under control.

        • RT says:

          The US is doing just that right now to Russia, forcing Russia to stop using the US dollars in its foreign exchange. Russia is going to trade with China and India using non dollar based system. The results of such sanction on Russia is to force the formation of such alternative trading system to become mature sooner than later. Perhaps soon we will see the dumping of US dollars in all those non allied countries in the world.

      • JayW says:

        Nice plan, Wolf! Unfortunately, the FED will do the exact opposite of what you’re suggesting. They’re scared to death tanking the housing market and significantly raising interest payments new debt and rollovers.

      • buda atum says:

        “Raise short-term rates by 100 basis points on March 16”.

        I was wondering why I wasn’t hearing this till now.

      • Bernard says:

        Really?

        Foreign born Americans are eligible to run for President.

        They have to have lived in the USA for at least 14 years. That domicile requirement counts time in the service of the USA overseas as “time in the USA”. For example, working officially for any entity of the USA overseas including the military.

        A perfect (well imperfect in reality) was the warmonger John McCain.

        A foreign born American that doesn’t have enough “official” time as a US citizen is, however, unable to pass on their US citizenship to their children.

        Illegal aliens and visitors that have children while in the USA means that those children are US citizens.

        So there are very interesting situations that can arise as a result.

        Those two idiot former members of the Royal family now have a child who is a US citizen by birth and is now subject to every imaginable IRS reporting requirement including FACTA and income tax………….

        Wonder if they will file the forms though…….

        • Wolf Richter says:

          Bernard,

          This is what the Constitution says, verbatim:

          “No Person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President;”

          McCain was born on a military base overseas, so this is interpreted as an extension of the US.

        • Apple says:

          Ted Cruz was born in Canada which is considered the 51st state. :)

      • Chimerica says:

        Simple reason. Inflate away the humongous debt.

    • dishonest says:

      I second this.

      Will anyone of the Fed people ever suffer the slightest disability for what they have done, financial or otherwise? Of course not. Why should they change their behavior? No matter what happens, (unless Putin goes “physics”) they have a virtual guarantee of a safe, comfortable, easy life.
      What would ever make them follow a different path?

      • Mark says:

        “What would ever make them follow a different path?”

        Criminal liability for counterfeiting ? A national referendum requiring
        criminal prosecution of these thugs? And regurgitation of their obscene and stolen wealth ? Powell is up to about $85 million in his ripped-off loot.

      • Jackson Y says:

        The current FOMC isn’t just the most crooked & corrupt, but also the wealthiest ever. Look at their financial disclosures: all multi-millionaires, often with substantial stock holdings, which affects their decision-making. These aren’t people who are tuned in to the financial struggles of ordinary Americans.

        • Wolfbay says:

          Greenspan certainly contributed to this mess but at least he put all his assets in treasuries and didn’t trade.

      • historicus says:

        “Will anyone of the Fed people ever suffer the slightest disability for what they have done, financial or otherwise?”

        It is absurd to place important decision making into the hands of those who pay no consequence for being wrong.” Thomas Sowell

        • historicus says:

          and let’s not forget, or fail to notice..
          all those who speak to “transitory” and the like..
          They seem to all have inflation protected pensions awaiting them….for life…courtesy of us…but what of us?
          Yellen must have three, at least (U of C, Fed , Treasury)
          Between those and “Speaking fees” (some called delayed compensations) she need not worry.
          Have any of these rulers of ours every had an hourly wage job, touched a shovel, or been to a lumber yard?

        • Bernard says:

          historicus,

          How many members of CONgress or Presidents have ever had a real job?

          How many of them have served in the military?

        • taxpayer says:

          Bernard: 74 representatives and 17 senators, according to https://www.americanveteranshonorfund.com/veterans-in-congress-by-party-state/ I think there are also some active reservists. And more with “intelligence” agency backgrounds.

    • The Real Tony says:

      He just had to state the Fed funds rate should be higher than the real or true inflation rate which is in double digits presently.

    • Brutus says:

      Changing the Fed president at this point is like changing the Captain of the Titanic AFTER hitting the Iceberg.

  2. Andrew says:

    It’s intentional, Wolf. There’s too much debt. Too much federal debt. Too much municipal debt. Too many pension obligations. Too much mortgage debt. Too much corporate debt. The fed decided long ago they won’t allow that house of cards to collapse. No politician will ever be forced to make a difficult decision. No one will ever be underwater on their house.

    The inflation will continue. The fed will pretend to be concerned. Maybe even throw in a few meaningless rate increases. But the money printing can’t stop. Buy Bitcoin or continue trying to make it in this corrupt game.

    • Random guy 62 says:

      I completely agree with you…all but the Bitcoin part.

      • Chris P says:

        The Fed will change how they calculate inflation. I’m sure they can get it below 2%

        • Jackson Y says:

          Yes, they could still switch to trimmed mean or another inflation measure that’s even lower than PCE.

        • The Real Tony says:

          Like the Bank of Canada’s bogus rate of inflation. They’ll factor out residential rents.

    • Apple says:

      Housing collapsed in 2008. People have very short memories these days.

      I’ve lost track of how many times Bitcoin has collapsed.

    • SS says:

      Great article.

    • Wolf Richter says:

      Andrew,

      “Too much debt”…

      In the second to last paragraph I explained how the corporate debt issues should be resolved. This also works for municipal debt. States cannot file for bankruptcy protection, but their debts can also be restructured.

      Pension plan benefits are often inflation adjusted, and so inflation does nothing to lighten the burden; on the contrary.

      Here is what I wrote in the 2nd paragraph from the bottom:

      “Allow debt restructurings and bankruptcies to resolve excessive debts in the economy. If companies have too much debt, they need to restructure this debt at the expense of investors. This is a healthy essential process of capitalism. For two recessions in a row, the Fed has stopped that process from playing out. Now there are huge excesses, further fueled by years of ultra-low interest rates. US laws and markets are well-suited to sort this out.”

      And in terms of your recommendation: “Buy Bitcoin or continue trying to make it in this corrupt game.”

      Hahahaha, corrupt game? BTC now is at $39,200. Exactly a year ago, it was at $59,300. Bitcoin has plunged 34% year-over-year, and you want me to buy this crap?

      • phleep says:

        > ” … If companies have too much debt, they need to restructure this debt at the expense of investors. This is a healthy essential process of capitalism. …”

        Absolutely. Buyers of equities TOOK THIS RISK going in. It is impossible futility to try to bail out everything and everyone. Making that promise after the fact is ripping someone else off.

        That is government operating as an insurer that would be guaranteed to itself go bankrupt and, in some way or other unwind. We cannot afford that. We will fall into brutal stark winner-take-all gangster rule. Hello failed USSR.

        But the system had already started to become unstable. Too many bailouts had already been printed. He was trying to keep the plates spinning. It became a runaway process, a sorcerer’s apprentice tragic-comedy.

        • Jake W says:

          agreed fully. the fact that the u.s. has gotten away with these games for the past 20 years just shows how much political and economic capital we built up in the aftermath of ww2. at this point, we’re no better than third world banana republics that have tried to subsist on borrowing and printing, it’s just that we have a credit card with a higher limit.

          but higher limit doesn’t mean an unlimited limit.

      • Augustus Frost says:

        Bitcoin and every other crypto is literally nothing. It’s not a currency. It’s speculating on nothing and even where the supply of one is limited, an infinite number of others can exist.

        Bitcoin has brand recognition and nothing else. When this house of cards falls apart, it’s destined to crash with it.

        If it lost 99% of its current value, it would still be 100% overpriced.

        • Duke says:

          The price of BTC tends to revert to the cost of mining Bitcoin. The amount of work it takes to solve a block and earn Bitcoin for miners self adjusts based on how much miners are working. BTC is the only crypto truly decentralized. The other cryptos were like IPOs where founders kept lots of the coins.
          You are saying crypto is based on nothing, under an article ranting about the devaluation of the USD! The FED is destroying the dollar but you guys don’t appreciate that nobody can flood the world with new BTC.
          WR cherry picks BTC crash time-frames. Just last week it was at 44k after being as low as 32k in the last month. Dollar cost averaging into BTC over a long time horizon at anytime in the past 12 years would have made someone beat almost any other store of value.

        • Apple says:

          Bitcoin is old school. NFT’s are where it’s at now.

        • Augustus Frost says:

          Bitcoin “mining” wastes a lot of real resources (energy and some human labor).

          It’s not a real currency and has no prospects of ever being used as one at any scale due to its price volatility.

          It might be better for hiding “money” from the government than the competition, but governments can and will squash it if it ever poses a serious threat to national fiat currency monopolies which I don’t think it will.

          I’ll change my mind if it holds most of its value after the asset mania crashes and burns.

        • Jake W says:

          duke, referring to the past 12 years, which people not only do for bitcoin, but for amzn shares, real estate, or anything else is really irritating.

          yes, in retrospect, you would done very well buying bitcoin 12 years ago and selling it today. but if we’re going to play that game, with a crystal ball, why not sell it at its peak at $68k and then rebuy in today?

          the question is not what turned out to be a good trade when viewed with a rearview mirror, but what is a good investment *today*. and i’ve seen little reason to think that bitcoin fits that bill.

        • Duke says:

          BTC is a perfect, incorruptible currency. You guys are so funny co planning about USD losing purchasing power and not realizing that BTC is the answer. Pulling out old tropes about it being wasteful and such. It is much more complicated than that. You would have to weight BTC energy usage against all the armoured trucks in the world trucking currency from vault to vault and all the costs of securing the currency and all the costs to society from devaluing it.

          Also Biden just issued an executive order saying USA needs to sort out regs in the space so we can keep our competitive advantage in the web3\crypto future. And the crypto space welcomes that as regulation will equal trust and further adoption.
          What is any currency? Just something a government made up. bTC isn’t much different except that nobody can print more of it. It’s supply is fixed. Imagine if we had kept to the gold standard instead of inflating our savings away.

          Also, if you guys understood the Lightening network, you would know that transaction cost of sending BTC is approaching zero.

      • Richard Hagedorn says:

        Wolf, I enjoy you candid remarks and educated understanding of markets and finance. I learn a lot from you and appreciate you. Thank You!

      • historicus says:

        “This is a healthy essential process of capitalism.”
        And in the words of Jim Grant ….”they are called corrections for a reason. They correct.”
        The central bankers have been focused on ironing out all cycles…but cycles are part of the correction process. They flush excesses. And to prevent such is to allow excesses to be built up, making the inevitable flush worse….systemic threatening on occasion. But that occurrence then brings the central banker into prominence, rescuing and accruing more power, more self authored mandates, like “2% inflation”, which didnt exist prior to 2008.

        • cb says:

          historicus said: ” like “2% inflation”, which didnt exist prior to 2008.”
          ————————————
          whatever their self authored mandates …………. the bastards have been creating inflation for decades …………..

          all self serving to their owners

      • Billygoat says:

        Wolf I’m surprised your not more interested in Bitcoin. It operates on the basis that it has an automated “central bank” which creates new coins at a set rate, until a specified date where it will stop. Yes there is investment mania. I’m speaking only to it’s core concepts. Of only we could run the fed that way. Maybe interesting to see USA interested in a digital currency.

      • steve waldrop says:

        Wolf, perspective is everything. Powell has done everything he could do to save this country by forcing us to return to a gold standard. And you, by writing articles like this, are trying to stop this natural progression of fiat. Anyone over 70 remembers the safe gold standard days back when there were work, savings, accountability, and moral ethics. All the positive Fed choices are not past, it is just sooner or later….

    • historicus says:

      Andrew…
      So, you seek no solution?
      One thing for certain…
      The CAUSE of the problem can not also be the SOLUTION to the problem.
      Debt and fake rates continuing is not the answer.
      Inflation is a race to the bottom.

    • Brewski says:

      Trying to spend my bitcoins.

      Can’t seem to get anybody to accept them.

      Silver & gold coins and cash seem to be a medium of exchange that gets things bought.

      B

    • Pickle says:

      Wolf, thank you for your steady stream of insightful articles. Probably among the minority of your audience, but as a younger millennial, what would you advise us to navigate these times?

      • Wolf Richter says:

        Pickle,

        This site has a lot of millennial readers, but not that many millennial commenters (though there are some self-professed millennials here).

        In terms of your question – “what would you advise us to navigate these times?” – I’m not giving advice. But I can tell you that these are totally crazy times, as you can see from my innumerable WTF charts for the past two years, with things spiking and plunging in a crazy manner all over the place. I have never seen anything like this, and I never-ever thought I would see anything like this.

        I think “capital preservation” and “purchasing power preservation” are going to be elevated into an art form and may turn out to be mutually exclusive. In other words, people seeking purchasing power preservation may be tempted to take such risks that, if it doesn’t pan out, they lose capital doing it, and end up with neither. So this is going to be tricky to navigate.

        • 91B20 1stCav (AUS) says:

          Pickle-…i would add, always, always, always ask “…who/what is trying to tell(sell) me there is a free lunch…”, including yourself…

          best of thought and fortune to you, and…

          may we all find a better day.

        • wakarimasen says:

          What about your longest short ? Could pay out I guess.

          Due to the end of globalization and the beginning of deglobalization currency pairs should move like the USD/CNY in favor of the latter.

        • Brendan says:

          Millennial reader here who rarely comments.

          I struggled for a few years to grasp what Wolf was always going on about “asset price inflation” and why he was so insistent on not adjusting home prices for consumer price index.

          Then I wondered why he was obsessing over inflation when no one else was talking about it (well, nothing that I was reading).

          Now it all makes a lot of sense. Thanks Wolf. I’ll donate to your Fed presidential campaign. That’s how it works, right?

      • Nate says:

        My take on that is to have a side hustle that generates cash by actually doing useful things that people will pay for. Ideally have a use for it yourself too so if/when the recession hits you will have time to develop your property/business yourself, investing your time there instead of moping about.

        One way to do potentially do this is to invest cash in real assets like low hours used equipment that will hopefully have low repairs while you earn your money back plus excess returns. You might even be able to hire somebody to do it for you and become self employed.

        Don’t buy on credit tho…

        • Tom S. says:

          Totally agree. Get a little side job that gives you the cash to enjoy the things you like to do (for your sanity) without breaking the bank. Those hobbies are all getting more expensive, but also are needed now more than ever.

          That and don’t buy a new car ever.

        • VintageVNvet says:

          For Tom:
          Just sold the most recent new car for slightly less than it cost 3 years ago; basically drove it for 35 months for approximately $100/month,,, much less than total of repairs, etc., for any used car I have ever had, not to mention the convenience of being able to drive across USA — the only reason to buy new IMHO — without concern for unknown unknowns…
          ( And would usually agree with you except for this recent crazy used car market. )

    • cd says:

      btc or a digital dollar will turn most into serfs….where the US can take everything in one key stroke….BTC is the end of freedom and the beginning of slavery….

      • Anthony A. says:

        I think that is one of the reasons the Chinese dictatorship is lining up to use digital money as a way to continue to enslave their people.

        • c_heale says:

          All major countries seem and central banks seem to be promoting digital money, not just the Chinese.

    • Old school says:

      Don’t place all your bets on the Fed not killing inflation. Dimartino Booth says the Fed has got things set up in banking system where they can tighten without risking the banking system.

      It will not take that many hikes to get the job done. If stock market goes down 50% inflation will go down as people stop spending and will roll us into a recession.

      If Fed doesn’t print the cure for higher prices will be higher prices and consumer will reduce spending and start cutting out discretionary spending.

    • Old School says:

      I am not sure. Fed’s legal mandate is controlling inflation.

      By the most basic measures Price to Sales or market cap to GDP the SP500 should be about 1500. Might as well kill inflation and get stocks back to a reasonable level at the same time. Get the big recession over with so economy can restructure. US running these huge trade imbalances is not a sustainable policy.

    • RT says:

      I agree except for the Bitcoin. I think the best way is to have real tangible assets that can produce food in the long term. Land, houses, farm land, animals, precious metal, tools, etc. Anything that is tangible and have real intrinsic values are better than the collapsing dollar. Bitcoins are not real tangible and have no intrinsic value.

      • VintageVNvet says:

        PMs also have little or no ”intrinsic value” for some folks rt, the exception being used to enhance electrical conductivity, etc…
        just another ”con” of the elite using PMs as a control mechanism, etc.

  3. BrianC - PDX says:

    The trucking company my son works for has told all of their drivers to fuel their trucks at the end of their day/shift. Because diesel prices are rising fast enough they’d rather top off today than tomorrow…

    • SteveO says:

      Yes real reason for gas lines in the 1970 s. Inflation is by now not later.

      • Anon1970 says:

        The gas lines were caused by the Arab oil embargo that started in Oct. 1973 and lasted for months. The embargo also caused massive inflation over the next few years. In the summer of 1973, regular gas cost only 30 cents a gallon in the suburbs of Detroit.

        • Auld Kodjer says:

          The Oil Shock was a contributing factor, but not the primary reason for the “great inflation” that began in 1972 and lasted a decade.

          Blaming Arabs is a convenience. The “inconvenient truth” was perhaps closer to home.

          To plagiarize Investopedia: it was US monetary policies, which financed massive budget deficits, that were the main cause.

          Upon his inauguration in 1969, President Richard Nixon inherited a recession and the Vietnam War.

          Nixon began his term by imposing politically convenient wage and price controls in 1971. Once removed, they fired up inflation as individuals and businesses made up for lost ground. We call that the “inflationary mindset” today.

          In 1971, Nixon broke the last link to gold, turning the American dollar into a fiat currency. The dollar was devalued, and millions of foreigners holding dollars, including oil barons in the Middle East with tens of millions of petrodollars, saw the value of dollars slashed. Is anyone really surprised that these oil barons responded as they did?

          Fearing a recession, Nixon then fired the Chairman of the Federal Reserve and pressured the new Chairman to force down interest rates and expand money supply. Sound familiar?

          By 1980, inflation reached 14%. The eventual cure was a brutal period of tight money and recession.

  4. Wisdom Seeker says:

    Right now it seems Powell’s Fed can’t make a move without political cover, lest they blow their chances of keeping their jobs –
    Congress stalled the reappointment process a month ago.

    The news blackout since then has been very intriguing. At a time when inflation has ignited, the stock market is melting down, there’s financial stress from a major war, somehow Congress isn’t able to agree on who the financial leaders should be, and no one in the press wants to talk about this?

    Meanwhile, guess who’s top of the list among that “small group of huge beneficiaries from the Fed’s policies”? Yep, Fed leaders and Members of Congress front-running their own policy changes.

    Somehow I don’t think Congress just wants a little more time to get wildly short the market before they give Powell the green light to jack rates back to where they should be. That’s not consistent with the needs of who owns them.

    • historicus says:

      ” Yep, Fed leaders and Members of Congress front-running their own policy changes.”
      what a game….and people think this is capitalism. Those games are nothing but criminal.

  5. Sigmund Fraud says:

    Bravo, Wolf! Please continue your expose’ and educational explanation about how the detailed mechanisms work behind the scenes in the Fed nightmare machine, the “creature from Jekyll Island.”

  6. sorabji says:

    The chances of an inflationary depression are steadily increasing.

    • phleep says:

      Agreed. Having reached this point, I think market discipline must at some point play its hand, no matter what the Fed does. If it has any decency, it should at least do some of what Wolf prescribes, in order to preserve some shred of purchasing power. The relative soft landing adjustment will be painful at best for the masses. Let’s get on with it. Otherwise despite my best efforts and prudence, this farce will deepen, and I and many others will be made destitute.

      • Augustus Frost says:

        The ultimate market discipline is on the value of the national currency. That’s the basis of any central bank’s power.

        The DXY is at about 99 now. It’s not in the danger zone which is around 70, so still a way to go but it doesn’t take long to get there with a change in psychology.

    • Augustus Frost says:

      Maybe.

      In the US, there won’t be a depression without a (massive) credit contraction which is normally deflationary.

      If you are thinking in terms of other countries, developing economies until recently didn’t have substantial reliance on credit for “money”. Not sure where this stands now but none have debt to anywhere near the same extent as the US.

      • Joe says:

        The only close analog (and it’s not really close) is Weimar Germany. Although the debts and external factors were different. There is some analogous activity going on.

        • wakarimasen says:

          No definetely not. The reasons for Weimar Hyperinflation were totally different. And something like this definitely will not happen.
          Due to the Versailles peace treaty Germany in the beginning intentionally wanted to inflate away this unbearable debt which had gagged its development perhaps forever. This is a result from the WW1.
          The Reichsbank (by which model the Warburgs formed the US FED by the way) had to finance the occupation of the Rhineland through the german army by spending their last gold reserves. In doing that the Reichsbank lost their ability to defend the Reichsmark and the big Inflation game started. So whenever the Reichsmark lost some ground against the USD the bakeries increased the bred prices. Wall Street speculators could acquire enormous assets particulary in the big cities. This laid the basics for the success the Nazis had – though they never won an election.
          But the inflation eased abruptly as the Reichsbank decided to abandon the gold standard and put other hard assets into their balance sheet.
          Very interesting piece of history.
          But Germans nowadays are still fearing about this somehow. It not needs stimuli to change the psychological mindset. This mindset is still prevalent in them. They still fear it and so it is a selfullfilling story.
          But you still can buy cheap when you look a bit. And many drive their old Diesels and not buy new cars.

    • Phoenix_Ikki says:

      Only if we live in a society where Jerome Powell and his cronies can be prosecuted for crimes against majority of the population.

      A man can dream…

  7. Confused says:

    Your proposals are well reasoned, so I’m pretty certain that they will be ignored by JP.

  8. KPL says:

    The Fed’s credibility shifted from Inflation Fighter under Volcker to Wealth Disparity Creator and Inflation Arsonist under Powell. And everyone knows it.

    A minor change in this text giving credit to all the Fed Chiefs who have graced the chair since Volcker…

    The Fed’s credibility shifted from Inflation Fighter under Volcker to Wealth Disparity Creator and becoming the Stock Market “Arsonist and Firefighter” under Maestro Greenspan and Money Spewer par excellence under “Housing will never go down and Saved the world” Bernanke and “No Financial Crisis during my life time” Yellen and Inflation Arsonist under “Infaltion is transitory” Powell

    • historicus says:

      People like to compare the 70s and early 80s inflation with today.
      In my opinion, the comparison ends here.

      Under Volcker (and even Burns), we had a Fed that FOUGHT inflation.
      Now, since Bernanke and to Powell…we have a Fed that PROMOTES inflation.
      Who allowed, who accepted that shift in policy?
      One might say they only want 2% inflation, but 2% rips 22% off the dollar in ten years…hardly “stable prices”.
      And what if they over shoot? What if the inflation “dog” gets off the leash due to overly stimulating with massive injections to the money supply? Then what? I guess we are getting that now….hand wringing over 1/4 pt raises.

  9. KPL says:

    “So this isn’t what the Fed should have done – that’s a different story – but what it should do now, starting after its meeting on March 16:”

    Hope the Fed reads. But then you can be sure that it will pass them by. They will think it is a joke.

    But this is what happens to guys who think are god. Good luck to the Fed in engineering a soft landing now that Putin has queered the pitch further.

  10. Jung says:

    I was under the impression that faster appreciation of assets over wages was the better part of the justification for counter-cyclic money printing. This reads like a series of excuses by the Fed to keep the casino open even as the whole place is caving in. I suspect they’re more malicious than reckless.

    • BuySome says:

      You’re a bit too forgiving. This is more like having the casino tables located in the lobby of the Jurrasic Park Lodge with the electric grid one step away from shutting down as the storm howls outside. But not to worry, our illustrious management team has the freezers stocked full of ice cream, there’s plenty of island memorabilia available in the tourist store, and lots of people have Dine-O-Coins to make them feel safe should the registers fail to clear your credit card purchases in a prompt and timely manner. Now where are those rescue choppers?

      • Harry Houndstooth says:

        Ha ha ha

        Not just incredible wisdom, but humor..

        served up fresh daily.

      • Xavier Caveat says:

        And all of the electric powered handguns won’t fire if the grid goes down.

      • RT says:

        And don’t forget the velociraptors roaming around and the T-Rex that just might bust in and destroy everything in any given moment!

  11. BaronVonPickle says:

    “effective federal funds rate (EFFR) to 0.08% while CPI inflation is raging at 7.9%”

    Alright, so I look at that and think ‘sure looks like a small number compared to a big one’. But Wolf, what exactly is the right ratio of EFFR to CPI, if our goal is to lower inflation?

    I read that Volcker fought annual inflation rates higher than 10% with a Fed rate of 20%. So is the ratio 2:1? Is it less? How do we know? I really am asking.

    • Wolf Richter says:

      The EFFR (an overnight unsecured rate between banks) should be above CPI in normal times, and further above CPI if there is growing inflation. If there is 0% inflation, the EFFR can be 0.25%

      A year ago, when CPI was getting close to 4%, the EFFR should have been 4%. And QT should have started. This would have likely stopped the burst of inflation from happening.

    • Augustus Frost says:

      What’s the correct price of popcorn or peanuts?

      No one knows what the “correct” interest rate “should be”, as there is no correct price for anything.

      Left to their own devices, I don’t believe market participants would choose to price the cost of (supposedly) risk free credit below the rate of depreciation.

      But this brings up a related subject of the currency monopoly.

      Left to their own devices, market participants also wouldn’t choose to use a perpetually depreciating currency either. But since currency issuance is also a national monopoly, they do not have a choice.

      In a real market with adequate private property rights, money would be treated as any another product. Government’s try to make a distinction between money and everything else but in terms of potential customer preferences, there isn’t any.

      No one knowingly and voluntarily chooses to use a perpetually inferior product.

      This is supposedly part of the appeal of cryptos but none of it is a real currency. It’s a speculative bag of hot air.

      • Wisdom Seeker says:

        There are compelling arguments that interest rates need to be greater than zero, and greater than inflation.

        Interest rates at or below zero encourage people to save “under the mattress” rather than investing productively. This takes credit out of circulation and reduces economic growth.

        Alternatively, interest rates below inflation encourage people to buy-and-hoard stuff they don’t need immediately, rather than investing productively. This makes the inflation worse as Wolf has repeatedly detailed.

        In both cases, the virtuous cycle that drives economic prosperity (save, invest, grow) breaks down.

        • 91B20 1stCav (AUS) says:

          WS-your last paragraph illustrates one of the two points of view contained in the old saying: “…virtue is its own reward…”. Looking back over many decades, it seems it has become a minority opinion…

          may we all find a better day.

  12. Kunal says:

    Fed is the most criminal agency ever. Fed should be abolished immediately. There is no other cure of this cancer.

    • KPL says:

      Can’t agree more! But unlikely to happen during our lifetime.
      The other alternative is to have only guys with a strong backbone and do not care to pander to wall street like Thomas Hoenig.

    • Iona says:

      Fed hasn’t killed people like our state department, cia, FBI, etc.

      At least as far as I know

      • KPL says:

        If he had said The Fed is a ” bunch of Financial Criminals” would it have been more appropriate. After all it is subset of the Criminal class and not killed anybody

      • SteveO says:

        You forgot CDC, NIH, FDA, all hospitals and really all forms of government responsible for vid9/11.

      • Marco says:

        Suicides caused by their Policies

      • Old school says:

        Fed has probably killed more people than anyone by making it easy for governments to get US involved in wars starting with useless WWI.

      • Happy1 says:

        But it is looting you, and you parents and grandparents.

    • Mark says:

      It’s absolutely criminal, and should be prosecuted as such .

      But apparently, only “little people” go to jail for such crimes in America-
      ( ie counterfeiting the US currency ).

    • John H. says:

      Kunan-

      Your idea is good, but I’d modify it a little.

      The Fed is not criminal…. It was created through congress. The problem is that is, by its original charter, its mission was to stabilize the money markets by interceding in the short-term interest rate markets. This kind of price-fixing can’t work without converting the money market to a government-fixed market.

      A secondary problem has been “mission-creep.” In order to stave off the effects of prior price-fixing, the Fed has had to progressively enhance its “toolbox” thereby becoming ever more influential powerful. It’s progressed every single decade!

      Congress created the Fed 110 years ago amid warnings that stabilization policy cannot work in the long run. But the lure of an institution that would allow congressional spending AND bank subsidization was too tantalizing. And if/when things go awry, as they appear to be now, congress can duck the blame and point to to bad management at the agency. Stabilization policy is synonymous with price-fixing and command economy.

      On the brighter side, the Fed arguably does perform some needed regulatory and organizational functions for the banking industry.

      Conclusion, don’t end the Fed — rather, end, or at least completely re-debate, the Fed mandates of “stabilizing” employment, inflation and interest rates. What we’ve been doing was misguided and no longer works (except for politicians).

      • KPL says:

        “We will live by the stock market” being their motto, everything else takes a back seat.

        While we can all debate till the cows come home, who will listen to us and more importantly can you see anyone on the horizon who can bell this cat?

        All these guys seem to be interested in is to keep the game going as long as they come and if it all comes down (as it will after decades may be) be able to deflect the blame. Putin is there for now!

      • Confused says:

        John H.

        Reform is required, but our political system is totally dysfunctional. If the political system still worked properly, I would recommend that Congress take back the Fed’s emergency authority to use QE, repeal the Fed’s mandate to maintain full employment, and transfer that full employment mandate to the Labor Department or perhaps a new Infrastructure Department.

        • Winston says:

          “Reform is required, but our political system is totally dysfunctional.”

          No, it functions just fine… for its actual owners. “When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.” – P.J. O’Rourke

          THAT is why it will NEVER change. Of course, short sighted profit taking is causing them to drive everyone but the oligarchs over a cliff.

          If you mean a functional government by the people and for the people, that has never actually existed except in VERY small towns where each vote has great effect and one can actual walk up to the mayor, talk with him and he’ll listen.

          The founders’ brilliant intended benefit of having the most powerful form of government be the one most local to you with the distant federal government having few purposes other than to enforce basic rights, carry out national defense, and prevent inter-state conflicts has long since been perverted. Some small benefits of that, a free market of governments, still exist as shown by those fleeing CA for TX and FL.

        • John H. says:

          Confused-

          “ …our political system is totally dysfunctional.”

          I totally agree that our political system is messed up. I was just saying that there is arguably a need for SOME regulation and oversight in banking, and that the Fed could do that, or some new agency could do it, as you suggest.

          But the bigger issue at hand is to get the Fed and the politicians OUT of the price-fixing / interest rate setting / bailout business. This is where they have gotten the financial markets so totally screwed up.
          This needs to happen by reform of existing institution or creation of a new regulatory arm (ughhh… another regulator), but either way, end the government manipulation of credit markets.

          (Aside: allowing the Labor department to control employment would be worse than mandating to Fed, IMO)

        • Jackson Y says:

          Note the ECB only has a price stability mandate & no employment mandate, yet that hasn’t kept them from dragging their feet on normalizing policy.

          The mandates are written so vaguely that there’s no way to enforce them.

      • historicus says:

        John H….

        If the Fed would be held to its mandates, which are really instructions and agreements that allow their existence, the situation would be much better.
        Take the Rules of Monetary Policy that is a Fed construct as to where Fed Funds should be. The Fed omitted those “rules” in their last publication. Curious.
        I encourage all to read them at the Cleveland Federal Reserve website

        https://www.clevelandfed.org/our-research/indicators-and-data/simple-monetary-policy-rules/archives.aspx

        The median rate of the seven calculations …has Fed Funds at 3.25% for the second quarter of this year.
        The Fed ignores these “guard rails”.
        The Fed ignores “stable prices ” mandate, now declaring 2% steady increase in prices is somehow “stable”.
        The Fed ignores their THIRD carved out mandate, as laid out in the 1977 Federal Reserve Avct…”promote moderate long term rates”. (ie not extreme, up or down) This mandate would have prevented the Fed from pounding down long rates, flattening the yield curve, and subsidizing reckless debt creation by a spending spree Congress.
        The words “stable” and “moderate” have been bastardized.
        And the old saying
        “The first victim of authoritarianism is language” certainly applies here.
        In a system that boasts of “checks and balances”, WHO CHECKS THE FED?

      • Augustus Frost says:

        “The Fed is not criminal…. It was created through congress. ”

        You’re using a legal definition. By definition, anything the government does supported by statute or a court decision is “legal” and not criminal.

        No matter how anyone tries to get around it, perpetually debasing the currency is a “taking” of everyone’s property and theft.

        • cd says:

          need to add it was created by congress on Xmas eve while no one was watching to control serfs…..

        • Wisdom Seeker says:

          The Fed’s not following its legal mandate. That certainly makes it criminal.

          It makes no difference whether you’re being robbed by the police, or by the bankers, you’re still being robbed.

      • Wisdom Seeker says:

        I would argue that the Fed actually is “criminal”, a rogue agency in violation of its legal mandate. Per the Federal Reserve Act as amended in 1977, the Fed’s mandate:

        “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

        The Fed is in gross violation of this portion of its legal mandate and that makes it a criminal/rogue agency. Interest rates are not “moderate”, and prices are not “stable” and the “monetary and credit aggregates” have grown far in excess of “the economy’s long-run potential”.

        And it’s not the first time the Fed’s gone rogue, either. The Fed’s purchases of MBS in the 2008 crisis were also rogue/criminal actions – in violation of their legal mandate to only purchase securities backed by full faith and credit of US govt. Fannie/Freddie MBS at the time were explicitly NOT full faith/credit securities, and this was printed right on the first page of those bonds. There were other rogue actions at the time.

        Some might argue that the Fed should have even-more extraordinary powers “in time of crisis”. But the Fed’s current powers are sufficient. And government agencies which are capable of fomenting crises must NOT be entitled to break the laws during crises that they themselves help to create! The risk of a power-grab is too large.

  13. beast says:

    FOMO

  14. Trucker guy says:

    Meanwhile I get OpEd articles suggested from Google over and over again about how that mean old Fed feller Jerome Powell shouldn’t raise the rates because of… Ukraine! Or was it gas prices? No no, it was chip shortages. I think, or maybe it was housing prices…

    Whatever, it warmed up enough to take the iron horse out again today. Ventured about to see some of the local lovelies of housing. Lots and lots of tear downs abound priced at 1mil plus. In rural Idaho. Places where there is no power, internet, water, or winter time access without tire chains and the dwellings listed as “Home has no value.” Nuthin under 750k. Plenty pushing 1.5 mil.

    Sounds kind of familiar. Some of the counties around this area are showing 50% increases yoy asking prices on realtor.com.

    But remember folks, it’s different this time, real estate only goes up, and you better buy before you get priced out!

    • Gonewesr says:

      I know several people who bought houses with a long commute who haven’t factored in the amount they will spend on gas, tires, oil and vehicles over a working lifetime as opposed to a few hundred extra dollars a month on a fixed mortgage, these are all young people

    • Twinkytwonk says:

      I’ve just called the top of the housing market here in the UK by selling the only house I own for 5* what I paid in 2002.

      Known my luck there will be 10% monthly increases from now on

    • LK says:

      Any excuse in a storm, as my spin on an old saying goes.

  15. John V says:

    I think the people who run the FED got a taste of power and liked it,
    and like the control that goes with it. I doubt they’ll ever give it up
    unless absolutely forced to and I can’t see Congress doing that unless
    the people demand it. So far, I haven’t heard much from the voters,
    they’re too busy buying stuff.
    The situation has been allowed to go on for too long, it’s now become entrenched with the FED firmly in control. I’m not sure it can ever be
    undone until there’s a complete collapse, such as Inflation/Recession.
    Until then, everyone’s having a great time expecting and waiting for more free money. That was a bad idea from the git go even if Biden did
    have his heart in the right place.
    We’ll just have to watch this play out. Meanwhile, I agree with everything you say, Wolf, and so does everyone to whom I send your column.

  16. Seattle Guy says:

    Scary – Scary – Massive layoffs in the mortgage field and they have NOT yet begun to raise rates… 2.5% to 4.25% 30-year fixed and 4.875% for 2nd homes and rentals in under a year.

    Maybe the Feds will not have to raise rates…The market will raise rates when the guys you have the money actually start pricing their investments with realistic RISK premiums. Corporate bond ETFs and Italy’s debt are all pricing higher – and huge outflows of funds.

    Thank you Wolf for explaining this slow-motion trainwreck – Please devote an article to how and where the station is …. I need to get off.

    • Mark says:

      I don’t know about the “slow-motion” trainwreck ….. as James Richter
      just commented about the financial repercussions :

      “It takes about a week for the bodies to float to the surface” .

    • georgist says:

      Surely mortgage brokers will get another job quickly?
      > What’s your income? Yeah you can lie, I’m not ethical
      > Okay so let me multiply that by 4
      > So assuming nothing bad happens every you can borrow ….
      I mean who doesn’t want to employ these legends?

    • BuySome says:

      Welcome to Zentropa. We wish you a comfortable night’s sleep on your journey across Europa. The conductor will see that your shoes are shined before morning arrives.

    • cd says:

      underwriters are history, I work in credit industry, AI and machine learning is the game now. If underwriter start to educate for new job….

      Machine readable credit data that can utilize credit data attributes is going to hurt FICO also, I work with several AI decision engines that have taken over all underwriting…

      • Wisoot says:

        Just taking in breath. The dragon awakes. Use cash only. As Catherine Austin Fitts has wisely warned. Be ready for when they fail.

  17. Cem says:

    Wouldn’t these proposals negatively effect the ultra wealthy? Can’t have that!

    Started reading first class passengers on a sinking ship, sadly it’s only updated through ‘17 or so. One of the core columns of the argument though is wealth disparity which if we look at the graph has gotten.. horrifically worse in 5 years.

  18. Bob says:

    Why would the Fed be so stubborn about not ending QE? What if 90% of all institutional assets are owned by the 1% and mega corps. We know for a fact that over stimulation causes asset inflation. Now what happens when wage inflation takes hold?

    • Augustus Frost says:

      Mega corps aren’t human beings, regardless that Citizens United says so for political purposes.

      Most institutional money isn’t owned by the 1%. They “only” own 20% of all wealth.

  19. Hyperinflation IS the soft landing says:

    In reply to Wolf’s ‘solution’; you can’t taper a ponzi. And the faster you try, the faster it all collapses. The Fed stops printing permanently and the only one’s left are the cockroaches.

  20. Matt says:

    This is a fantasy. Tight Fed is never going to happen.

    • Bead says:

      There is no political support for ending inflation. Mainstream media actually seems to believe in the fantasy of UBI. You could count the number of concerned Congress critters on one hand. The rich (political contributors) have precious little to complain about.

      There are merely the latecomers to the housing market and that subset of cautious old goats with appreciable and carefully collected savings. That’s the constituency and it’s an ugly orphan sought by no politicians whatever.

      • Janna says:

        Inflation is a political nightmare…unless you have something else to blame it on.
        How much will the Fed use Russia to guide their path ahead?

        WH Press Briefing March 10th:

        Q “A question on the economy. The inflation numbers that we received today show consumers paying almost 8 percent more than a year ago, and this was before Russia’s invasion of Ukraine. So how much higher does the administration expect prices to climb?”

        MS. PSAKI: “Well, as you know, a large driver of these inflationary numbers from the last — these monthly numbers were from energy prices. And we have seen the ener- — the increase, you know, happen as a result of Russia’s invasion of Ukraine.

        Obviously, they make those assessments on a regular basis. But in terms of prices going up, we do anticipate that gas prices and energy prices will go up. That is something that the President has conveyed very clearly to the American public. We also believe it will be temporary and not long lasting.

        So I can’t make additi- — new projections for you from here, other than to convey that, yes, it is accurate that the invasion by President Putin into Ukraine has impacted global inflation, inflation in the United States because of the impact it’s had on energy prices. And that is a significant contributor to inflation — the inflationary numbers we saw come out today.”

      • historicus says:

        “There is no political support for ending inflation.”
        Recent polls say inflation a bigger concern than Ukraine.

      • Augustus Frost says:

        Depends upon what you mean by political support.

        There hasn’t been to this point because current monetary policy seemed to be free.

        When the USD starts crashing in the FX markets, this sentiment will change, contrary to the opinions of many comments I read here.

        The economy, the markets, and the public will all be thrown under the bus to preserve the Empire.

        For an example of that, look at the recent ban on importing Russian energy. It’s a minor inconvenience to Russia which won’t make any difference to the geopolitical situation in Europe. It might not make much difference to energy prices in the US either but it’s symbolic of government priorities.

        • Al Loco says:

          Our politicians seem to be good at convincing the general public that inflation is good and they will make is better somehow if you vote for them. Put up a line graph of M2 and say its the blueprints for the Keystone Pipeline and people get behind it. I dont understand the willful ignorance.

        • Bead says:

          What I mean by political support is any politician discussing (not even taking action to retard) the effects of Fed irresponsibility. Sure, when the train wreck finally occurs there will be a salvage effort.

    • Harrold says:

      I would argue tight fed CANNOT happen, because congress will continue to spend more and more every year. Why do they do that? Because gov’t spending directly adds to GDP, and they need it to rise every year so they can say they did something come election time.

      So even if the fed tightens, congress will be easing by use of their check kiting and raising the debt limit every few months.

      Now, if the fed does what Wolf suggests, 10s of millions will be laid off. Because many companies and jobs only exist because of super low financing. So, that means millions on unemployment/welfare = more gov’t stimulus, which is the same as loose monetary policy.

      In other words, the fed would have to be tougher than anyone believes they ever will, AND they have to stay strong for the years it would take to wipe out the decades of over leverage. Anybody think the politics would ever allow that to happen?

  21. Sit23 says:

    Big mistake used by you and a lot of others. Using the words mistake and error to describe the actions of the Fed. Their actions are neither in error or mistaken. Their actions, with Jerome Powell at the helm, have always benefitted the people they were meant to benefit the whole time. Mr Powell and his cronies have done exactly what was required to benefit the correct people in the correct manner for as long as possible. Their elephant hide skins, and their private jets, and their secured homes mean that how the people feel, who pay for their enrichment, mean nothing to them.

    • historicus says:

      Watch for the Fed to bail out Blackrock, Blackstone, and others taking big losses in Russia (now) and China (later).

      • Wolf Richter says:

        historicus,

        Misconception here.

        These are fund managers. The companies are NOT taking the losses, but their funds do — meaning investors who bought these funds are losing money. So if you bought a Blackrock mutual fund with heavy exposure to Russia, YOU are going to get hit, not Blackrock.

        These headlines in the media are misleading — it’s not Blackrock that took the loss, but investors of Blackrock’s mutual funds.

        So the Fed doesn’t need to bail out Blackrock. Blackrock is not at risk — investors in its mutual funds are.

  22. SocalJimObjects says:

    The Fed doing one of the things Wolf suggested is already a miracle. The Fed doing all of those things: never.

    Selling MBS? Won’t someone think of SocalJim?

  23. Great, and most certainly social media-share worthy as always Wolf.

    Which I have done!

  24. Felix_47 says:

    I would vote for someone or a party that would take Wolf’s stand. Am I alone? We are fighting for democracy in Ukraine……how about fighting for democracy in the US? I am sure that most voters who have an IQ over 100 (meaning in the top half) would be able to understand what Wolf is explaining and would be completely in favor of it. Studies show that our government does not generally act in ways the electorate wants. It acts in the way lobbyists want. We need to transform campaign finance reform and require our legislators and Fed leaders to take a basic economics course with an exam and they need to be replaced if they fail it. Powell is an attorney. His wealth has gone from something like 40 million on arrival to the fed to 80 million now or about that. That can explain his actions.

    • BuySome says:

      Sorry, but I digress. Wolf is an eternal optimist. Who gets an M.B.A. when he should be at the top of the class in a Maritime College? His advice was good right up until we passed around Greenland. But I remind you that the last operating orders of the bridge officer were essentially “full reverse and mitigate”. The next two were “full stop” followed in a couple of hours with “abandon ship”. I say, stay this course and prepare to stove in the bow. Better to crush a couple of forward compartments full of import/export junk than to sink a vessel that has proven to be essentially sound. Take the hit, anchor the ship in the berg, crank up the bilge pumps, and file all those fat asses out of staterooms and put them to work on repairs. And start moving the other passengers over on to the cold but stable mass of hard ice (a.k.a. Cash is King). Destroy anything that interferes with survival including crap coins, derivatives, credit cards, and the rest of this shit that’s been dragged onboard. The new orders should be “Get hard or get off”. No tourist class tickets will be accepted anymore.

  25. Winston says:

    Continuing inflation input:

    Coming LA-LB cargo surge to rebuild vessel backlog: terminals – 10 Mar 2022

    Projections from the ports of Los Angeles and Long Beach show that after a lull of several weeks during the Lunar New Year holidays, import volumes will surge 30 to 60 percent later this month.

    The halving of the backlog of container ships in Southern California belies a surge of vessel arrivals that will hit marine terminals in less than two weeks, illustrating the see-saw recovery of the largest US import gateway after 20 months of elevated Asian imports.

    Shippers face rising fuel surcharges on top of rate pain – 11 Mar 2022

    Geopolitical turmoil is pushing up bunker prices, significantly adding to carrier costs that will be passed on to shippers through fuel surcharges in long-term contracts.

    • SteveO says:

      Port of long beach and Mitch are owned by China.

    • Max Power says:

      Although it will take them longer to sail there, the Chinese really need to consider shipping to the East Coast instead – where various container terminals are sitting idle.

  26. Dazed And Confused says:

    Not only is inflation at a 40 year high and rising fast.

    But unemployment is very close to a 50 year low and still dropping – in fact, unemployment has only been lower than the current 3.8% for a few months in the last 50+ years – and was never lower during the Reagan and Clinton boom years.

    The Fed does have a dual mandate so if unemployment was currently say 10% that might justify a negative EFFR.

    BUT under the current circumstances, it makes no sense whatsoever.

    • VintageVNvet says:

      Workers don’t count as ”unemployed” when NOT LOOKING FOR A JOB DnC!
      So, once again and as always, ”unemployment” numbers from BLS or any other GUV MINT org are BS.
      Seen this over and over in my decades in construction industry when seeing reports of per cent of our workers ”unemployed” were much closer to those actually working, because our guys, including me once, knew we could do much better working cash under the table until paycheck work started to boom again. Had many years with NO income at all according to the official Social Security list of my income per year, and many more with very little…
      That was also due to employers never filing their 941s, far shore.

  27. Dazed And Confused says:

    5 year breakeven inflation is now at an all-time record high of 3.52%
    10 year breakeven inflation is at an all-time record high of 2.94%.
    Both are rising fast.

    • historicus says:

      The Fed has created their own dystopia.
      in cash hurt by inflation
      in stocks hurt by inflation and market action.

      The Black Swan of Ukraine is why you dont have the “happy buttons” pushed all the time. Record stock prices and record low unemployment and the consideration to withdraw stimulus was met with….”dont ruin the party”. Even Keynes suggested pulling back when things are good. But not the MMTers.

  28. historicus says:

    Rules of Monetary Policy (Federal Reserve)
    “Summary of Federal Funds Rates Based on Seven Simple Policy Rules” (read at Cleveland Federal Reserve website)
    Calculated off of GDP, Inflation, Employment and other inputs
    For Second quarter of 2022

    Maximum 14.61
    75th Percentile 5.92
    Median 3.47
    25th Percentile 1.82
    Minimum 0.57

    and the handwringing is over a 1/4 or 1/2? Absurd.

    And what seems to always not quite make it on the news…
    Inflation is aggregated and compounded.
    Thus, a return to the illegal target of 2%, is ADDED onto the 8% we are experiencing now. The recent price increases dont go away.
    Also, that 2% is now 2% of a larger number making the actual amount of the acceptable rate larger.
    Powell says he doesnt want to have happen that which happened in the late 70s early 80s. Well, when does “wishful thinking” take a back seat to reality. Volcker didnt want to do it either, but he stood to his post and did his duty.

    • Augustus Frost says:

      Monetary policy shouldn’t even exist.

      • historicus says:

        Augustus
        I wouldnt go that far (though I sport an END THE FED bumper sticker).
        There are mandates that they ignore
        There are guidelines that they ignore
        There are the meanings of key words (stable, moderate) that they redefine

        You have people that are answering to something different…..that is clearly apparent.
        GDP and the pull of the economy should dictate money supply
        Inflation should be a major input in Fed Funds calculations
        And the guard rails should be hard and firm….and violations should meet with some sort of stern and corrective reaction from…whom, Congress?
        Instead we get concern over racial makeup of the FOMC, gender concerns of the makeup of the FOMC, and employment inclusiveness (despite record job openings).

        • Augustus Frost says:

          Why not?

          Where is the actual evidence that it produces better societal outcomes?

          The typical thinking is similar to the broken window fallacy.

          To believe it produces an actual improvement, you have to:

          A) Believe in something for nothing

          B) Ignore the future consequences of the existing massive distortions.

          Before monetary policy went off the rails starting under Greenspan (your point of reference), there were periodic recessions mixed with limited fake expansions. However, that doesn’t mean it was an improvement over the pre-1930’s economy. The distortions were just smaller meaning it would take more time to end up where we are now.

          Under current policy, we have artificially long economic expansions with short brief sharp contractions.

          What’s either going to lead to?

          A “fat tail” catastrophic systemic failure at an unspecified future date, complete with extreme economic hardship and the social discord that goes with it.

          No, there is never something for nothing.

        • Jackson Y says:

          Climate change is the big one. I watched the senate confirmation hearings for Biden’s FOMC governor nominees. More time was spent discussing climate change & assessing climate risk in banking supervision than on any other topic, including the big elephant in the room. This was clearly the number one priority for the current governing party.

    • Dazed And Confused says:

      The target is 2% average over the business cycle.
      Business cycle = 1 recession + 1 expansion.
      Last recession started exactly 2 years ago.

      If the next recession starts in 2025 say, inflation will need to average 0% over the next 3 years for Fed to hit their target.

  29. breamrod says:

    one has to understand that the fed really only cares about the banks and because they are so highly leveraged raising rates to where they should be would bankrupt all of them. This whole financial system is now a truly house if cards. It will end in war and a inflationary depression IMO

  30. David Hall says:

    Airline ticket inflation surged in Feb. to 12.7% annual inflation. This affects those possessed by wanderlust.

    Interest rate hikes might help savers. The Fed does not have the authority to balance the Federal budget, thus there is inflation risk.

    • Wolf Richter says:

      My wife just flew to Japan (after the Japanese gov relaxed the quarantine requirements) to visit her folks. The ticket cost over 2x what she’d paid in late 2019.

      She reported back that the flight was not full at all, that she had a whole row to herself and that she could stretch out and sleep, and everything was on time and worked smoothly, including the hoops she had to jump through upon arrival (required covid test, wait for results, install required tracking app on smartphone, etc.).

      • Wisoot says:

        Why accept tracking? Take a throw away phone to travel and throw it away.

      • Marco says:

        With your money Wolf you should have sent her Business … lol

      • SnakeEater says:

        I flew to Haneda airport on a 767 from Delta and there were about 15 people on board. Best flight of my life. Boggles the mind that they could make money considering that the fuel alone cost at least $50k.

        • Wolf Richter says:

          She flew on United to Haneda, and also said that she hadn’t been on a flight this good in years. Flight got in early too. She didn’t give me an estimate of how many people were on board, and asking what plane it was would have been a step too far, but the row in front of her was also empty (this came up because she raved about being able to put her feet into the slot between the seats). So that tells you something.

          Yes, sounds like the airlines are losing money on these flights, even at these prices. Maybe they should lower their prices to get more people to fly, no?

      • Swamp Creature says:

        I don’t even own a smartphone. Just a flip phone in the car for emergencies. I heard the COVID tracking aps on your phone makes the phone easily hacked? I wouldn’t want that crap on my phone. The whole world could know your whole life. Sort of like Hunter B’s “Laptop from Hell”.

  31. Chrislongs says:

    Wolf,
    In UK next month likely 100% increase in domestic energy costs plus tax increase on jobs ( both employer & employee contributions) so no major interest rate increases needed as austerity to complete the job!

  32. You run a bath and decide to make a sandwich whiles the tub is filling. You become distracted reading Wolf Street comments and when you remember your tub, you find it overflowing and soaking the floor with water running through the floor and filling the basement.

    Do you: a) slowly slowly reduce the water running into the tub and go make another sandwich or b) shut the tap off completely and begin mopping up the mess?

    • COWG says:

      I vote for:

      c) Ignore it and pull out your smartphone and list it on Zillow with a water view and some small repairs needed… gone in an hour….

      • VintageVNvet says:

        LOL,,, was just checking out some RE and saw ”waterfront” on headline, clicked and saw a very sloppy drainage ditch at back of listing!!!

    • What happened to the first sandwich?

    • Bobbleheadlincoln says:

      c) realize that your bathroom is somehow inexplicably above your electrical control box and the water contacted the main lines but the breaker didn’t trip properly and somehow blew out the transformer on the street and your negligence has negatively impacted other innocent people…

  33. c1ue says:

    So the real question is: What will the musical equivalent of disco be, this time around?

  34. Anon1970 says:

    Most of you are forgetting that the Fed also has to deal with the Humphrey-Hawkins Full Employment Act of 1978. The Fed has twin objectives of fighting inflation and promoting full employment.

    • Ricco says:

      Just like the other institutions, the FRB has long been captured by the oligarchs. Nobody in power gives a darn about the laws. They can make them whatever they want. The public has been dumbed down or neutered. It’s the end of western ‘democracy ‘.

  35. Augustus Frost says:

    The current financial situation including debt, fiscal policy, and monetary policy is a reflection of a society which is falling apart.

    It’s not there yet but we have been making substantial progress and trying really hard to get there. There are so many idiotic public policies (and monetary policy is only one) that it would be harder to cause more damage if it was intentional. (I know many believe it to be.)

    Artificially cheap money, the loosest credit standards ever, and the biggest asset mania in the history of human civilization produce a fake economy with abundant fake wealth to make American (and western society) appear to be (somewhat prosperous.

    I agree with the recommendations of this article, other than I don’t believe monetary policy should exist at all.

    Though it’s not a mechanical process, implementing these recommendations would wipe out most fake wealth and crash the economy into an economic contraction worse than the GFC.

    • khowdung Flunghi says:

      “Though it’s not a mechanical process, implementing these recommendations would wipe out most fake wealth and crash the economy into an economic contraction worse than the GFC.”

      Completely agree! The word “implementing” implies a deliberate decision – my guess is one of the flocks of black swans with the wheels down is going to force the issue regardless of what those “in charge” would prefer.

      One of the things I find fascinating about our current situation is the absolute absence of any mention of the cost of our on-going wars – apparently we’re still searching for WMD’s or something, having bagged Afghanistan.

      Have recently been watching some programming from the WWII era and there are endless appeals to “buy war bonds and savings stamps” – what a quaint idea, paying for a war!

      We’ve been doing “guns and butter” since Vietnam and the Great Society – I guess you CAN defy gravity, but only until the fuel runs out…

      • 91B20 1stCav (AUS) says:

        KF-…”guns and butter”-the opiate that really separated our citizens from thinking that they needed to take any responsibility to pay attention, oversee or act thoughtfully on the policies-foreign and domestic-of our government…

        tanstaafl.

        may we all find a better day.

  36. The underlying problem, is a mindset that, in turn, goes back a long way, to where a bright spark on Wall Street came up with the idea of increasing leverage. once that was set into motion, before anyone knew it, leverage was reputed to have reached +350 . . . or more. Next thing, wall street advocates then realised they had so much money close to hand, they could hand it out to “friends”, and so then we get to the age of Hedge Funds, and the like . . . where a Wall Street friend would say, hey Joe, here, take, say $30 Billion off my hands . . . enjoy. So at that point, where historically, it would have taken a lifetime to reach that point; this time the recipient might have been in their early 30’s. But not one, many followed, and the disease spread like wildfire. Then, when things started to go awry, bailouts became the norm; and also remained the norm.

    The problem is not Powell, it is a mindset, long developed from the start of excess leverage; that has spread throughout the entire global financial system. No one within the system wants it to stop; No ONE!

    The only way to bring about the necessary change will be to break it; shut it off completely. So tell me how to do that without the obvious consequences?

    • Bobber says:

      And what are these “consequences” you refer to?

      I wouldn’t consider the realignment of work and reward to be a consequence. It’s a necessity.

  37. Swamp Creature says:

    Great Article! Agree 100% with everything on the list

    I would put getting rid of MBS off the Fed’s balance sheet as priority #1. They should have never been there in the 1st place.

    Interest rates are going up with or without the Fed intervention.

  38. historicus says:

    From looking at the CPI vs Fed Funds chart as provided, is there any question that the Fed has become something it did not used to be?

    Where is this chart in the Federal Reserve hearings before Congress? The wealth effect chart?
    I maintain that 2008 changed the Fed, as in it became “hijacked” by the exact people that brought us 2008. And they have prospered mightily in the past 13 years…because THEY KNEW the Fed was different, that the Fed WOULD NOT do that which they were expected to do, that which they did for 7 decades (ie Fed Funds equal to or greater than inflation) . They cheered inflation…..and knew the Fed would not respond. And here we are…

    • KPL says:

      “I maintain that 2008 changed the Fed”

      So do I. I also think it has scared them forever by seeing how close the financial system was to collapse.

      But instead of learning how not to reach that point they got carried away by their success and felt they are gods. Now the real gods seem to have come down to teach them a lesson or two for their presumptuousness.

      Should make for a lively watching.

  39. Sean Shasta says:

    Hello Wolf, I am completely with you on the recklessness of the Fed for at least 3 decades let alone the last 2-3 years.

    However, we have a Black Swan event underway in terms of the Russian invasion of Ukraine. Given the appropriate sanctions and exit of US banks and corporations en masse, there is likely to be a fairly sizable (though not significant) hit to revenues and profits. Many investment banks are starting to say the dreaded “R” word.

    Given this situation, would you still continue to push for rapid QT as well as interest rate hikes? I agree that the Fed should start making some nominal moves and watch the situation very carefully. But it seems like any rapid QT + Rate Hikes moves can land us in a deep(er) recession. Would appreciate your comments on this.

    • Augustus Frost says:

      Using the USD as weapon of economic mass destruction will only hasten its end as global reserve currency. But then, I suppose “doing something” even if it is counterproductive and ineffective makes most people feel good.

      As usual, my prediction is that the US response will either fail or result in blowback unintended consequences. Russia will still pursue the war to its bitter conclusion to enforce Ukraine’s neutrality and likely replace the government with one of their own.

      The US and EU have declared total economic war. If this continues, I expect Russia to sell surplus oil, gas and other strategic commodities to China who will stockpile it to remove it from global supply. It’s their economic nuclear option.

      There is also the risk of a wider trade war with China. Despite the ridiculous attempts by the US State Department to convince them to act otherwise, China isn’t going to watch the US collapse the Russian economy and they have the economic capability to backstop it. If the US and EU pursue a similar path with China, it’s going to take the world economy on a path to a 1930’s style trade war which will be much worse now than it was then.

    • historicus says:

      Sean
      ” But it seems like any rapid QT + Rate Hikes moves can land us in a deep(er) recession”
      If you believe we are in this situation………rampant inflation and massive debt……then to continue with that which caused it is insanity.
      The CAUSE can not logically also be the SOLUTION
      Why is it always assumed that higher rates will cause a recession? It might make the stock market retreat, but why must the valuations of stocks be defended by monetary policy? Spiked asset prices are to be defended by the Fed? Market action is not the duty of the Fed, per their instructions.
      We had 2% Fed Funds in 2018 and there was no recession.
      The fact the Powell waited for this meeting is revealing…..it suggests they are enjoying the inflation.
      But INFLATION can and do cause recessions….ask a business owner.

      • Sean Shasta says:

        Historicism, you are preaching to the choir. I am all for QT and interest rate hikes.

        I’m just wondering how the double whammy of “losses from pulling out of Russia” + “higher borrowing costs” will impact the corporate sector. And, in turn, the overall economy.

        • Sean Shasta says:

          Historicus, sorry for misspelling your name. Was using a phone to send the reply and messed it up.

        • historicus says:

          Those taking risk outside the nation….
          seems to be out of the purview of the Fed.

          The saving of international risk takers is so far afield from what the Fed is supposed to do.
          The People of this nation, the businesses of this nation
          DON”T KNOW WHAT THIER MONEY IS WORTH. This is the Fed’s duty. They continually attempt to save the “big guys” at the expense of the people who turn the lights on and fill the shelves of this country. We are seeing the effects now.
          Who knows what a house is worth? A used car?
          But the problem the Fed has created is “what is a dollar worth”? If it sits in a bank, it goes backwards. And going forward, you cant buy much.

    • Jake W says:

      the hit to revenues and profits would have happened in spite of russia’s invasion of the ukraine.

      the reason is very simple. congress borrowed trillions and handed it out. while covid caused a loss of about $1.5 trillion in economic activity, more than $5 trillion was handed out to “paper” over this. that means that gdp for the last year and a half was artificially high. it wasn’t based on production, but deficit fueled consumption. that isn’t sustainable unless the economy grows by that amount (it didn’t) or if the stimulus continues forever (it hasn’t).

      so there was going to be a recession either way. if anything, inflation will be made worse by these geopolitical events. all the more reason to get it under control *now*, not tomorrow.

      • Sean Shasta says:

        > so there was going to be a recession either way

        Yes, so my question is – why make the recession deeper with QT+interest rate hikes?

        > if anything, inflation will be made worse by these geopolitical events.

        I don’t think a recession and inflation can happen at the same time. To my understanding, recessions will lead to lower demand thereby inhibiting inflation.

        I am open to further explanation.

  40. David W. Young says:

    Wow, Wolf Baby, this is one of your best commentaries ever! The U.S. Federal Reserve has taken Moral Hazard, or the risk to make bets on fluctuating financial assets, out of the American financial system ever since Greenspan’s diaper wetting on October 19, 1987. Has never, ever been the charter of the U.S. Federal Reserve to come to the rescue of risk-taking investors and continue to pump zero cost money into the system to keep Wall Street in Bentley’s as long as the 14 years since the 2008 Collapse.

    Wait until the Credit Default Swaps, who no one understands in entirety, related to Russia’s and even China’s debt obligations blossom like daffodils in the weeks and months ahead. It will be a Lehman Moment that will put that liquidity crisis to shame. Our 8 major financial institutions in America own more of this stuff than most humanoids realize, and we are looking at the dike of Quadrillions of Derivatives, esp. in the credit sector, now leaking and soon to flood the Fatherland via default after default after default. A daisy chain, let’s call it a Risk Chain, that will make Supply Chain problems pale in comparison.

    Look also to the high fliers of this current stock bubble and bond bubble also that never generated enough cash to retire any of their debt and will be defaulting as the economy slams to slow motion in the months ahead.

    With mega-bonuses paid to the risk-addicted Too Big To Sail banksters even in taxpayer bail-out 2008 and 2009, there was never any incentive or Government restrictions to make the Big Boys cease the excessive, highly risky operations in the derivatives market. That stinky turkey is now coming home to roost, and there will be riots in the streets should the Government or the Fed subsidize these autocrats at taxpayers’ expense during the renewed Depression we are now entering.

    Speaking of civil unrest, I expect to see not only food riots in the months ahead, Mr. Powell and Gang, take a bow, but fist fights in gasoline lines when we possibly get into gas rationing a la 1973. Not only will we get to $7 per gallon this summer, but there will be plenty of supply chain disruptions for crude oil on its way to refineries.

    The necessities of life are just that: food, shelter, heat, water, and the ability to get to work are putting the hurt already on the Man and Woman on the Street. 14% inflation by year’s end is now not out of the question and we may see the Hyper word before too long.

    Grow a pair, Mr. Powell. Wolf is available for $250 per hour consulting fees, same as O.J. attorney, Johnny Cochran got. A one-percent increase this coming week is just a fricking start, but the Inflation Genie, Mr. Powell will be kicking your legacy into the ditch as it puts the American Consumer into a version of Dicken’s debtors’ prison and into soup kitchen lines. Inflation is like high blood pressure, a silent killer.

    • Augustus Frost says:

      Contrary to many claims I have read here, the majority of the (supposed) super rich will also lose most of their fake wealth. There won’t be anywhere near 724 billionaires measured in 2022 money by the time the asset bubble finishes collapsing.

      I also agree that many of these people (most) have large debts on their inflated assets. Cash income has been at a premium for 10+ years once the stock market regained most of the GFC losses. With such low dividends and interest rates, billionaires don’t necessarily generate enough income to support their lifestyles. If you are one and aren’t a hedge fund manager or with large in-the-money option grants, you might generate $10MM (or less) on $1B.

      Many of their lifestyles are so expensive, they can’t afford it without a bubble economy.

      • COWG says:

        “ Cash income has been at a premium for 10+ years once the stock market regained most of the GFC losses”

        A public company well run with cash income usually becomes a target for the predators… then financialized out of existence…

    • BuySome says:

      If it gets to the point of real gasoline “rationing” (not odd/even fuel days) due to supply constraint, then they will need to go to tiered pricing per quantity. Like 30 gals. per month at base pricing, with each incremental useage of another 30 doubling in price each time. Why? Squeeze the basic workers too much on pricing and you’ll see gas stations going up in flames. But nobody cares if the guy wasting fuel feels the pinch because he can probably afford it.

      • c_heale says:

        Did they do this in the 1970s?

        • BuySome says:

          Assuming you’re asking why there was no kickback in the past…1) As bad as the ’70’s seemed to many, it was never like where this is going. 2) Different population..still had blind faith in leaders to be responsible. 3) Now-Lots of additional anger pent up on top of these things. 4) Less hope, and whole layer of society reminding them of that constantly. 5) Loose controls on drugs and alcohol to fuel the fire once it sparks. 6) Instant communications that permit things to happen much faster now. 7) Too much visual input reprogramming responses.

  41. JeffD says:

    “30-year bonds with 29 years left to run; they need to go first.”

    They can’t sell as you’ve laid it out, because there are literally no buyers under those conditions. I’m not even sure there would be buyers with a 60% discount when inflation is running this hot.

    • Wolf Richter says:

      JeffD,

      A higher yield (meaning lower price) solves those demand problems. If the yield goes high enough, I will back up the truck and scream, load her up, baby.

      • COWG says:

        I with you there, brother…

        Waiting til the 10 year pushes 5 and start laddering about 1k every month…

      • Prophet says:

        Go ahead, back up the truck Wolf, and buy all that government debt you can afford. And when the younger generations take control of congress and figure out that they were not the ones that created all the debt, they’ll intentionally default and the individual investor will be the first in line to receive the “haircut.”

        So, you’re all for public debt, so long as YOU can generate income from it.

        • COWG says:

          Be a damn fool not to…

          It appears you’re angry about something…

          You can tell Uncle COWG if you want to get it off your chest…

          Or if you’ve run out of meds… I know a guy,.. maybe

        • Enlightened Libertarian says:

          I tell every kid I can that they have no obligation to pay off the trillions of dollars of stolen money run up by their parents, grandparents and great-grandparents. Let the old people pay off the debt run up by the criminals they elected.

        • Prophet says:

          COWG,

          If by “meds,” you mean prescription meds, I don’t take any. Only hookers and blow for me, thank you. Don’t need your help there, either.

          It doesn’t do the country any good to increase the interest payment on debt outstanding. Therefore, I suggest the fed hold the long bond to maturity and remit the interest to the treasury. End QE only.

          If you look at the chart, CPI vs. FFR, 2008-2015, the FFR was the same as it is now, and CPI was not spiking, as it is now. So, what changed between now and then? Massive stimulus — welfare, direct to the consumer (I received none). That’s the reason for the inflation now. If the gov would cut off all forms of welfare, inflation would return to a lower rate, not transitory, but the target of 2%, perhaps. Cut off all debt forgiveness, forbearances and moratoriums. But that’s not going to happen.

          If, on the other hand, the Fed decides to reduce the balance sheet and the yield on the long bond rises BUT free money is still given away, reducing the balance sheet won’t tame inflation. The welfare checks may have stopped for now, but they’ll return. Forbearances and moratoriums will also return. The state I live in is already proposing yet another check.

          It’s all moot anyways, as the yield on the 10-year will never rise above 3% and the CPI will be well above that. So, if you’re gonna back up the truck, better get it at 3%, that way, you’ll only be losing 5% or more on your savings as opposed to double digits.

        • COWG says:

          P,

          I get it, my friend, I really do…

          If you’ll see most of my posts you’ll find we are not very far apart on the same side of the fence…

          My biggest pet peeve is the stock market…

          I mean seriously, how in the hell can one little bitty piece of stock be sliced and diced, bet on, leveraged and be used in 15 different ways , other than what it is supposed to be… a financial vehicle used to help a company expand…period…

          If you really want to get me going, ask me why there’s not a transaction cost of a dollar on every share sold or traded…

          If you can afford to buy a 100,000 shares at $50 per, then you can damn well afford to pay $100,000 in a transaction tax…

          Wouldn’t take long to wipe out that debt you’re worried about…

          I am very risk adverse at my age… I don’t like gambling either… so a modest return relatively risk free is going to be a small nest egg for my grandchildren, hence my view on Tbills…

          Didn’t want offend you, just wanted to distract you from your thoughts…

          What is it Wall Street lives to say…. Don’t hate the players, hate the game… well, I hate all those a$$holes…

        • Prophet says:

          COWG,

          Try not to hate, too much, the righteous and good Christian floor-traders of the NYSE, for they proudly adorn the flag of the USofA on their jacket sleeves and suspend their money-changing thieveries in observance of Good Friday. /s

          I read the articles, study the charts and read the comments (your comments too) because there is much wisdom, education and entertainment to be gleaned from this incredible website.

          I am angry, very angry, indeed. Not with savers, mind you, and not just with the Fed, but with government at every level. That is my pet peeve. I am politically active at the local level.

          Take heed of the younger generations, up-and-coming, for they are going to be angry, just as I am, and will seek retribution.

        • ru82 says:

          Interesting thoughts Prophet. Keep in mind that the average boomer only has $72k in their 401k. They certainly have not benefited from the increase in debt over the past 20 years.

          Laws these days seem to be written by corporations through lobbyist. Thus the the rich get richer. The top 1% now own almost 60% of the entire stock market. Got to the top 5% and it may be 80%. The are the hedge fund owners, the CEOs, etc.
          Most industries are oligopolies. Many create deals with each other. Google pays Apple Billions of dollars to be the search engine. If you are a start up search engine…..good luck.

          Lobbyist control where the money gets spent and whose campaign gets the money. If you do not have money, you will not get elected. Not sure how the young generation can change that. I hope they do.

        • ru82 says:

          One more comment on the medium 401k for the boomer. It might be up to 80k but that is about it.

          Most boomers said they can retire on $45k to $50k. For that to happen, they need about $400k in a 401k to supplement their 401k.

          What I see in the future is many Boomers who need assistance from the government. This should most likely lead to higher taxes and I am guess, some tax changes to go after the big 401k balances.

        • 91B20 1stCav (AUS) says:

          Prophet-retribution will feel good, but remember that in and of itself it won’t ensure that a future society works any better (Cromwell comes to mind). (…don’t misunderstand me, your outrage IS well-placed, but as Dylan wrote: ‘…Tomorrow is a Long Time…’).

          may we all find a better day.

  42. THEWILLMAN says:

    There is another way:

    “ Continued low levels of inflation and inflation expectations have been a key support for healthy economic performance. … Atypical restraint on compensation increases has been evident for a few years now, and appears to be mainly the consequence of greater worker insecurity.” Alan Greenspan (1997)

    Let inflation run and squeeze the most vulnerable until they are back in the fed dream state of “greater worker insecurity” where they are so desperate they’ll just accept whatever minimum wage job they can get.

    First the squeeze will handle the demand side. Thanks to the inelastic nature of gas and groceries – the more elastic things like used cars and construction materials will collapse in price. CPI levels out.

    Second the resulting “insecurity” of people barely being able to put food on the table will handle the supply side as more people stop quitting jobs to start their own business, stop looking for more pay elsewhere and go back to living in fear of their employers ability to throw them into poverty at any moment. Inflationary mindset gone.

    Never underestimate their readiness to solve a finance problem with a human cost.

    • Jon W says:

      Problem is that workers are not homogenous. There are plenty of folks barely able to put food on the table whether working or not. These folks have been around since long before COVID and will be around for a long time after. Pummelling them to a greater or lesser degree has very little overall effect on the economy.

      The real action is in the middle class. The middle class is aspirational – and this is the key driver of consumption in western economies. Middle class people don’t have a problem feeding themselves, but they are having increasing problems getting that house they would like, a nicer car, or that holiday abroad.

      My anecdotal sense is that the health crisis (made a lot of people re-evaluate the hamster wheel), looming environmental issues, and the surge in asset prices which ripped up many people’s dreams, have resulted in a lot of the middle class changing tack. I know people who have given up on getting the bigger house and are now down to one income, or four day weeks, because they’ve seen the value in just enjoying life.

      This sort of thing is a disaster for the economy.

      • Augustus Frost says:

        I’d place over 60% of US households in the category described by your post, maybe up to the 80th percentile in the income distribution depending upon household size and geographic location.

        The 50th percentile isn’t usually actually “middle class”, not going by living standards and definitely not by financial stability.

        The primary (and in many instances only) reason most of the supposed US middle class can “afford’ their current living standards is because of the asset mania and fake economy.

      • Jake W says:

        very well said. the problem with printing money is that it makes work pointless. work, at its core, is a sacrifice. you’re sacrificing your time and enjoyment of life for necessities and for the the aspirational things. put the aspirational things out of reach, and people will only work the bare minimum to afford necessities.

        you remove people’s drive to get ahead, and to afford the aspirational things, and the economy collapses.

        • Augustus Frost says:

          Expectations which most Americans consider normal in the US are either actually a lot less normal or not normal at all.

          The mass consumer economy as Americans know it today didn’t exist when I was growing up because credit wasn’t anywhere near as easy to get as it has been since the early 90’s.

          American “middle class” households didn’t routinely live in 2000 SQFT or much bigger homes, didn’t drive what are now $50,000+ cars, didn’t travel internationally at all, didn’t retire at age 62, and didn’t eat out as they do now.

          The lifestyle I am describing, traditionally, someone would have had to be wealthy or near it to afford it, to the extent it was even available.

          Problem is now, a lot of people (a noticeable) percentage with this lifestyle aren’t rich (or anywhere near it). They are actually at or near being broke but just do not know it.

          What I am describing, this is the aspirational lifestyle and more that Americans expect. Since it’s predominantly based upon widespread cheap credit from the loosest credit standards in history, it’s not sustainable.

          But you can’t tell the typical American this because to them, the lifestyles made possible by the fake economy (and the asset mania) is “normal” if not their birthright.

          I read commentary here and elsewhere all the time by supposed “pessimists”. I almost never hear anyone admit how and why most Americans are destined to become poorer or a lot poorer in the future than they have been most of my entire adult life.

          It’s coming when the mania ends and the collision with hugely inflated expectations is going to be a trainwreck.

          This disconnect is also (much) worse in the US than practically if not everywhere else.

        • BuySome says:

          Very good, A.F., but to expound on that “didn’t travel internationally”….before railroads most people never even went beyond thirty miles from home. Now we have become used to open borders but it doesn’t take much for the oceans to become full war zones where only restricted convoy shipments are allowed to move. It would not be the first time we have run into this, but this time it could turn every pre-concieved notion about the world right on its’ ass. Banking on calm heads to prevail is shortsighted and truly a recipe for disaster.

      • c_heale says:

        If you ever have a serious illness, it makes you reevaluate your whole life. Most variants of C19 gave you a serious illness.

      • John H. says:

        Augustus and Jake W.-

        Is “financial independence” one of the aspirations that the two of you re discussing?

        During my career years, that was a goal for me and most of my acquaintances: to build a significant and reliable stockpile of wealth to afford those necessities and aspirationals that you two have mentioned, WITHOUT having to rely on a loan, or on governmental payments of any sort.

        I guess we wanted to be rich… or at least rich enough to support ourselves independently.

        Your discussion brings up questions of savings and sel-reliance, and also circles back to the ethics of money production and inflationary policy.

        Also, where does “rich” end, and “too rich” begin?

        • Augustus Frost says:

          Sure, I’d include it though for most Americans I think it’s secondary to some arbitrary lifestyle in the present.

          Wat most deem financial independence is another outcome of the asset mania because what most people consider to be “savings” is actually predominantly fake wealth.

          Depending upon definitions, the United States isn’t actually wealthy enough to provide financial independence for millions without a fake economy and an asset mania because the economic production doesn’t exist to support it.

          If financial independence is supposed to include an aspirational lifestyle, the country isn’t going to be able to provide it at scale once this mania ends.

        • John H. says:

          AF –

          I always thought of wealth as accumulated savings: as cash plus assets (less debt, if any). For me, assets include direct stocks, indirect stocks (e.g. mutual funds) and bonds.

          Not trying at all to be argumentative, but when you say “fake wealth,” what assets are the fake ones??

        • John H. says:

          Oops… forgot to add tangible assets” like home, car, household items, jewelry to list of assets:

          – Cash
          – Equity investments
          – Bond investments
          – Tangibles

    • THRILLHOU says:

      THEWILLMAN – “Never underestimate their readiness to solve a finance problem with a human cost.” Well-written, and deeply insightful. And sadly prescient….

  43. JeffD says:

    The best and only thing they need to do is to raise prime rate above CPI to 8.5%

  44. Spencer Bradley Hall says:

    Volcker ended inflation when he imposed reserve requirements against Now and Super Now accounts in April 1981 (after the “time bomb”) in January 1981 (the widespread introduction of ATS, Now, and SuperNow accounts which vastly accelerated the velocity of money).

    Powell should reimpose reserve requirements on all transaction balances and remove the inclusion of vault cash as a part of legal reserve balances.

  45. Doubting Thomas says:

    Wolf,

    Thank you for your outstanding article today. It’s one of your best ever, and there is a lot of competition.

    And so, we are in the deepest of all doo doo. As a career finance guy who spent decades making tough business investment decisions knowing that some would win and some would lose, I always had confidence that over the long haul I would come out ahead, and I did. But the last couple of years have destroyed that confidence. In the middle of this financial world turned upside down, I am not looking to increase my wealth. I just want to stop the bleeding in my real purchasing power. I have reached the conclusion that it’s simply not possible to do that under current Fed “risk on” policy. Someone please, please tell me I am wrong. Meanwhile, I am living as simply as possible.

    • Swamp Creature says:

      Doubting Thomas

      They are forcing everyone to go out and take unnecessary risks. Playing by the rules doesn’t work anymore. The powers to be are simply using the savings of the average person to finance their prolific spending and deficits. Think Weimer Republic in 1922/1923. I’m in the same boat as you are along with a lot of other people. The only thing that works now is to accept a loss in purchasing power, cut your standard of living, simplify your life, and stay in the workforce as long as possible, and hope that you can survive this. Be sure of one thing. It will not end pretty.

      • historicus says:

        SC
        They FORCED (their word) ….
        and turned everyone into yield chasers …
        When the Fed pounded the long end it served two purpose for the Fed…(at least)
        *It forced investors to take more risk. altering risk/return and PE norms
        *It allowed the Fed, and the cable tv talking heads, to point to the flat yield curve and say “See, people arent worried about inflation.”
        but it was fake…a deception.
        To promote inflation to any degree is to violate the meaning of “stable prices”
        To pound long term interest rates is to violate the meaning of “promote moderate long term interest rates.”
        Call me old fashioned, but words and oaths of office matter.
        Maybe a Congressman will ask the question…

      • w.c.l. says:

        You’re right, it won’t. As the Klingon’ said to their prisoners in Star Trek Discovery, “Choose your Pain”.

    • historicus says:

      Thomas
      Most saw the inflation coming…..it wasnt too difficult.

      But WHO KNEW the Fed would essentially do NOTHING ABOUT IT?
      For it is THEY who prospered, relied on the Fed not doing what they had done up until 2008….keep Fed Funds equal to or even with inflation..
      Where would housing and stocks be if the Fed had held to their duties?

      • Doubting Thomas says:

        Historicus,

        Couldn’t agree more. I sure as hell didn’t foresee the Fed’s complete inaction in the face of rapidly rising inflation. With (1) the nominal 10-year risk-free Treasury rate at 2% or below, and (2) equity risk premiums plummeting as cash sloshes around the system, asset valuations are dangerously high. All of this comes straight back to the Fed’s easy money / risk-on policy that, if it ever was justified, should have ended a year ago once it was clear that the economy was strong despite the Covid epidemic. We are far down a bad path. If the loose monetary policy continues, we’re screwed by inflation. If the loose monetary policy stops, we’re screwed by a massive drop in stock and real estate values. Either way, we’re screwed. We’re talking social disruption here as real standards of living crater over the next 18 months. Thank you, Fed.

        Live simply.

        • historicus says:

          It seems Powell bought into the Modern Monetary Theory
          Maybe if he had taken some Econ courses at Georgetown Prep and Princeton….or maybe knew an economist at Chevy Chase country club growing up…he would know it is a farse.
          Maybe if Powell was locked in a room with Thomas Hoenig he might understand.
          The elites who have never held a shovel or been in a lumber yard or worked for an hourly wage are fluffing the pillows of the other end of the spectrum. The workers/earners/savers of this country are getting slaughtered…and the venture capitalists floating CLOs hand over fist, the ones who knew the Fed would behave completely different that required by their alleged policy….the Powell folk, are doing just fine.
          Occupy Wall Street was just a few blocks off. 33 Liberty St, New York, NY is the address of the New York Fed. Maybe next time.

        • Pea Sea says:

          “If the loose monetary policy stops, we’re screwed by a massive drop in stock and real estate values.”

          There are many, many people who would be the exact opposite of screwed by a massive drop in real estate prices.

    • meadows says:

      Thomas,

      Living more simply is a good financial call. There are so many ways to accomplish this. It’s a natural direction for people retiring or already retired, like me and Mrs. Meadows. We barely drive or travel any more, have a reasonable mortgage as our only debt, ok savings and are in the “de-accumulating” phase of life.

      I think readers here may underestimate the pervasive corruption at the Fed. The appearance of service to the public is phony.

      Read Treasure Islands to see the awesome girth of the corruption as a feature, not a bug, of our financial “system.”

      • historicus says:

        meadows
        “I think readers here may underestimate the pervasive corruption at the Fed.”

        I think the readers and posters of this site know and identify very well the corruption and the lack of DUTY to oath and office.
        At the very least, if you get caught cheating at the Fed, your punishment is to take your money and go home. (3 Fed govs resign)

  46. Mike T. says:

    If only our representatives in DC read this post and the cause of the runaway inflation we now have. Instead they are yelling out it’s Putin’s fault and talking of eliminating federal gasoline tax to ease the pain. What they really need to do is find out why the Fed isn’t following it’s primary mandate to control inflation around 2%/yr.

    Wolf. Delete earlier post please as I had my VPN on so it went straight into moderation

    • Wolf Richter says:

      Mike T.,

      It’s not your VPN, which shouldn’t make any difference. Your comments are now getting flagged by my spam filter (which sends them to moderation), for some inexplicable reason. This happens quite a bit. Please be patient when it happens.

    • DawnsEarlyLight says:

      Maybe because DC and the Fed are scratching each others back!

  47. Spencer Bradley Hall says:

    Pozsar is right. The FED will continue to error. It will continue QE (producing outside money as opposed to inside money). The FED will continue to stoke income inequality with its outside money spigot.

    Lending by the Reserve and Commercial banks is inflationary, increases both the volume and turnover of new money. Whereas lending by the nonbanks, other things equal, is non-inflationary (is a velocity relationship – a matching savings with investment).

    You see, the Keynesian economists have achieved their objective, that there is no difference between money and liquid assets.

  48. unamused says:

    Why, when the situation is so clear and alarming, does it remain so stubbornly intractable to change? It is because those who have power in the world want it to be this way.

    You don’t see the billionaire class complaining. Your overlords (and overladies) have been raking it in for years, and there’s nothing you can do about it. Hell, you can’t even tax them. And people of privilege will always risk your complete destruction rather than surrender any material portion of their advantage.

    It gets worse the more you look at it, and it’s not hard at all to see where this is going. You haven’t seen anything yet.

  49. bremrod says:

    our representatives don’t represent us. It’s everyone for themselves I’m afraid. Greed led to leverage, led to “to big to fail”. They have two choices now: let it all collapse or destroy the currency. History says they destroy the money. We’ll see.

    • historicus says:

      Our representatives serve one purpose..
      we hire them to “beg” for the money to come back to where it originally left, after the bureaucracy gets their cut.
      Look at what Schummer got for NY and the guy in LA got for Mobile AL in this last bill.

  50. unamused says:

    Um, Mike, the Fed’s primary mandate isn’t to control inflation. The TBTF bank owners of the Fed mandate it to engineer the upward redistribution of wealth.

    Oh, and to try to make it look good. People complain when it becomes too obvious, and they just don’t have the kind of window dressing available to other federal operations.

  51. cb says:

    Wolf said: “The Volcker Fed, back in the early 1980s, earned the credibility as inflation fighter. This has benefited the economy for nearly 40 years. It even got the Fed through the money printing spree during and after the Financial Crisis without triggering rampant inflation of the type we now have.”
    —————————————————
    Volker = Good
    FED = Bad

    Volker’s job and benefit started unwinding with scumbag Greenspan. Greenspan openly merged the workings of the FED with Wall Street, doing things like bailing out Long Term Capital Management, and it’s been great for financial engineers and asset owners, and bad for workers ever since. Bernanke, Yellen and Powell continued. Government policy has been a contributor. All the loan encouragement and subsidies. Laws giving tax deferment for retirement accounts and 401k’s.

    It’s been all about banks, wall street, corporatism, globalism and financial engineering for decades. The FED has been acting in the interest of it’s owners.

  52. cb says:

    Wolf said: “What this wealth effect doctrine has accomplished – and with exponential efficiency during the crazed QE and interest rate repression since March 2020 – is the greatest wealth disparity ever.”
    ———————————————-
    interest rate repression and money expansion has been going on for decades.

    • historicus says:

      cb
      since QE in 2009 for sure.
      All one has to do is look at the Fed Funds vs CPI chart provided in this article to see the Fed was hijacked in 2009.

  53. cb says:

    All this inflation is a monetary phenominon :

    Throw the delayed and grossly manipulated CPI in the trash. It is a diversion. It doesn’t take a CPI distorted measurement to realize a 1970’s 10 cents candybar, 65 cents 10 or so years ago, is now $1.59 and smaller in size; or to realize what has happened to asset prices, house prices, health care, insurance, food, rent.

    All of this is driven by money expansion.

  54. fred flintstone says:

    Its been about 75 years since the US accepted world leadership from Britain.
    We are still on top.
    Unfortunately, just as Rome, Greece, Spain, and Britain suffered under Decades of bad leadership……we’ve had a collection of dolts since the 1950’s. Blame it on anything you like.
    Hopefully this period will pass like indigestion.
    I’am not clear on who takes over in 24 but for some reason I believe it will be a generational change that will bring the light.
    Of course…..I also thought Ronald Reagan was going to balance the federal budget…..he made me look like a dunce.
    I do think that JP is the dumbest,political schill to ever achieve an office that high since……..naw…….he is the record holder.

    • historicus says:

      “We are still on top.”

      Thucydidies Trap

    • khowdung Flunghi says:

      “…for some reason I believe it will be a generational change that will bring the light.”

      I agree. Think many of the <50 age group is starting to "figure it out" as to how badly they're getting robbed and are ready to take action.

      The next round of "Occupy Wall Street" may not be so civil…

      And yes, one of Wolf's best!

      • Dazed And Confused says:

        More like:

        “Occupy 20th Street and Constitution Avenue N.W.”

        that’s the real villain’s lair

        • 91B20 1stCav (AUS) says:

          D&C-“…we have met the enemy, and he is US…”

          -Walt Kelly’s ‘Pogo’, circa 1960’s.

          another aphorism attributed to Jefferson: “…in a democracy, the people get the government they deserve…” (and i’m sure even ol’ Tom didn’t fully realize the unintended import of that statement…).

          and yet another from the Founders’ era: “…if we do not hang together, we will all hang separately…”.

          Our collective shirts are all heavily soiled- will we realize that we need more cooperation in this creaky ol’ laundromat before another power sends us back to the river with only flat rocks and a stick?

          may we all find a better day.

  55. sam says:

    JPMorgan’s marching orders for HR….

    No need for Grad school, Fed time a plus…

    A pity that Bernie Madoff passed away.. heard he was really great at whatever he put his mind to..

  56. Tim R says:

    Oops, monetary and fiscal policy just so happened to further enrich the oligarchs at the expense of everyone else, run up monumental bubbles, run up incomprehensible debt, punish the living hell out of prudent savers, the poor and those without assets and otherwise destroy the fiat US currency.

    Gee golly gosh, I guess the only way out of this is going to be a new shiny CBDC!!

    Just a happy little accident by powell and his comrades.

    • BuySome says:

      You’ve hit the core of the real matter here. Everyone’s looking for this futuristic easy way out. “Technology Will Set You Free” will be the words on the entrance sign to the new condo concentration camps, and they’ll happily walk right on in with the promise of a meal and a shower.

    • Softtail Rider says:

      Tim R,

      I wondered when this would make it’s appearance on Wolf’s site. Not what I want to see as our government already knows too much of my ways. No more under the table deals. It’s been impossible to kite a hot check for years now.

      It reminds me of the old joke about using axe handles and change with hammer handles in Oklahoma during the Depression.

    • tom20 says:

      Now now, that’s tinfoil type thinking.
      You are supposed to go along with the narrative
      that they are foolish..stupid….reckless…etc.

      This will be noted on your social score.

      • Tim R says:

        Ah yes, incompetent buffoons whose actions happen to always have the exact opposite intended effects.

  57. Block Squared Inc. says:

    I’m sure everyone had seen this article by Thomas Hoenig when it came out a few months ago, but was informative and in contrary to most articles at that time.

    I have always believed in the Fed for the most part, but when the S&P 500 pretty much reverted back by end of May 2020 I constantly asked why QE was not ended then and there.
    They always noted yield curve inversion worries in reversing their 3.20 policies in concert, but they enacted asset purchasing and rate cuts simultaneously, so what effect will that have? I know Wolf mentions all 29 year remaining Ts need to be sold first so raise long term rates above.

    I also recall too, that fed presidents mentioned that they were “out of bullets” in regards in dealing with another down turn, this was during the quasi QE a few years ago.

    • historicus says:

      “Thomas Hoenig”
      The voice in the wilderness

      Read “Lords of Easy Money’

  58. Above comment says:

    *To raise long term yields

  59. Whatever the Fed does next week will be tempered by what happens after the Euro conflict plays out. This could cost a lot and the Fed will be cognizant of the need to monetize govt spending. Wall St hasn’t jumped on the WOAR! wagon yet.

  60. Albert says:

    US ecomony can’t work without QE anymore? Otherwise, Wolf’s suggestions have been implemented 1-2 years ago…

  61. Ahmed says:

    One of your best analytical and educational works Wolf !
    Great learning material.
    I’m not seeing any reason for the rate of CPI increase to slow down.
    Mr. Powell’s 1/4 point rate increases will mean nothing, so I see inflation at 13+% by EOY. Probably will be much worse if Putin’s aggression on Ukraine, which is already out of hand, gets totally out of hand.
    Mr. Powell at that point might be around 4% with his ludicrous ‘soft landing’ moves (blaming Putin for everything instead for his own follies) which’ll put him 9000+ basis point behind the curve. He’ll then need several 1500, or 2000, bp increases in a row to try fighting the conflagration.
    At the grocery store, beef will be around $20/lb and gas will be pushing $10/gallon in many places.
    2023 is already taking shape to be another 1929 for stocks..

  62. georgist says:

    Wolf you should have published my comment about Powell’s belief that the USA can turn it around, it’s relevant. Insane nationalism and a complete refusal to hear any kind of critique is not the approach of a confident nation.

    • Wolf Richter says:

      The first paragraph about US manufacturing was total factual idiotic BS. Maybe it was just some drive-by nonsense. But you can’t spread that nonsense on my site. I didn’t even read the second paragraph about Powell. When I got to the end of the first paragraph, I hit delete.

  63. LifeSupportSystem4aVote says:

    Nancy Pelosi on how government spending reduces national debt and thereby is not inflationary (Mar 12, 2022):

    This legislator (and all her sycophants) is supposed to be the overseer of the Fed?

    • Depth Charge says:

      When you give the pig the lever to his own slop, you get thousand pound porkers for days. Nancy P. is a 1,500 pounder. So is J. Pow. The idea that these people will suddenly do the right thing is laughable beyond words. They’ve got a 1/4 point rate hike in the cue. That’ll do it…

    • Augustus Frost says:

      Aside from being a populist demagogue, she is also an economic illiterate.

  64. Chris Hajek says:

    Thanks for your very astute posts. I have turned to you for years for information, and have never commented before. I’m very uneducated in economics (a liberal arts university professor here), and from my point of view of relative ignorance, it would seem that the Fed is not making mistakes, but is indeed succeeding at serving its clients. I’m reminded of the words of Philip Gourevitch when writing about the role of the Clinton administration in the Rwandan genocide. I paraphrase: The U.S. administration did not fail to act to stem the Rwandan genocide, but actually succeeded tremendously in its plan to NOT act.

    Can someone please tell me why the Fed needs “credibility”? The only people providing oversight are the direct beneficiaries of their corrupt actions. Does a cabal of figures who can do what they want, when they want, and with no REAL oversight then, need to care about credibility in terms of meeting quaint mandates?

    • COWG says:

      “ Can someone please tell me why the Fed needs “credibility”

      Chris,

      The Fed is in charge of the economy…

      The people living in the economy make decisions every day that concern their well-being in all aspects from daily purchases to long term financial decisions based upon the economic structures that come from the Fed…

      The Fed has a huge credibility problem now because people are beginning to lose faith in what’s going to happen in the future… this will effect everything they do in the future… and their participation in the economy…

      The Fed has lost control of the economy, hence high inflation, asset inflation, debt and other maladies…

      And they did it on purpose… and couldn’t even lie about it convincingly…

      The biggest take is the Fed has a hand in everything in your life…

      They have to be credible or the economy will crash…

      Or more simply, how much more inflation can you stand…

      • historicus says:

        The Fed is supposed to provide the fertile environment for a good economy…while keeping prices stable and long rates moderate.
        They are not there to spike asset prices, force investors to take more risk, or defend the stock market…….but they do.
        They control ever “tick”…

      • CH says:

        Thank you very much, COWG!

    • John H. says:

      Chris-

      There’s a catch-22 here, IMO.

      The Fed needs “credibility” in order to control economy (in the short-run) by using its money production tools. Its power to move markets derives from the belief that it can control.

      But the money production, over the long-run, leads to a fear of the ability of money to maintain its purchasing power.

      The inflation we see now is the result of a loss of faith in money — buyers are scrambling to replace money with goods, higher prices be damned!

      By fulfilling its stabilization mandates, the Fed sows the seed of its own failure. And “credibility” eventually goes out the window.

      That’s Catch-22.

      • historicus says:

        John H…
        “By fulfilling its stabilization mandates, the Fed sows the seed of its own failure.”
        Disagree.
        First of all, the Fed ignores their mandates. And there are three…max employment, stable prices, and promote moderate long term interest rates. Though getting to a good employment #, they completely fail in the last two. Inflation in any degree is not “stable prices.” And moderate long rates means “not extreme”….and that applies to “up or down”. Record low rates and record low rates below the inflation rate are extreme by any metric.
        GDP expansion should dictate the need for money supply growth…not whimsical decisions to ramp up the supply by 40% in two years to “get things going”.
        Inflation should dictate interest rates.

        • John H. says:

          Historicus-

          I’m not suggesting that the Fed is not a bad actor here.

          But isn’t the Fed attempting to buy short-term pain relief (by keeping rates low through rate setting and bond buying), at the expense of long-term price stability.

          And what do they base their policy on? The three conflicting congressional mandates you’ve described so well in your WS comments. A big problem is that they can choose at any point in time to emphasize that mandate which justifies their current stance, then switch to another when its convenient to their bureaucratic interests.

          Pretty surely I’ve done a poor job of explaining myself, but you make a mistake if you think I’m trying to defend the Fed…

      • CH says:

        Thank you John H.

  65. Karl says:

    Excellent take on the situation. Everyone knows what’s going on, but we need lots of pieces like this to clarify the problem. They will come fast now I think. “Powell will try to engineer a soft landing.” The wisest and most concerning quote from Wolf.

  66. Marco says:

    Is this FED desired and induced inflation even helping to start to reduce the overall public and private debt percentages ?

    • unamused says:

      Partially. It’s mostly profiteering. Because they can.
      The shortages seem a bit too convenient, but for some they’ve been immensely profitable.

      Naw, they wouldn’t do that. Why, that would be wrong.

    • Augustus Frost says:

      In theory, yes. In practice, not how most think about it.

      I’d say no because the debt isn’t owed proportionately across the population. Outside of mortgages, for anyone in the bottom 80%, any lightening of the debt burden is usually going to be more than offset by the increase in cost of living.

  67. Xavier Caveat says:

    We need DIN buttons quick!

    Deny Inflation Now

  68. Swamp Creature says:

    On the positive side at least we are somewhat informed, with the wealth of information available to the average citizen. Think back to the poor soles in Weimer Germany 1922/1923 who were wiped out without having the foggiest idea of what was going on until it was too late.

    • Xavier Caveat says:

      That isn’t really true, the first hyperinflation hit Austria & Hungary around 1919 and there was inflation in Germany at that point, but it wasn’t anything compared to those 2 countries. They certainly saw it coming, and the smarties had invested in the German stock market which kept inflation @ bay (sound familiar?)

      Have a gander at When Money Dies to get a great account of what went down, it’s online for free.

      • Swamp Creature says:

        I already read the book “When Money Dies” twice. Very well written.

  69. DawnsEarlyLight says:

    Great presentation Wolf! Very rare to get hindsight, insight, and foresight in the same article.

  70. Gabby Cat says:

    Thanks for the learning experience Wolf! If you don’t want the Fed job, you should look at starting your own educational arm. I would enroll in classes and pay to understand my 401K.

  71. Bernard says:

    Seems to me that the Fed is like every other US government entity working to screw over the ordinary US citizen.

    Nothing they have done over the past year is for the benefit of the people that are citizens.

    The US government now can’t do anything right and everything they do just makes it worse.

    The Fed has been doing it the people in the USA and around the world since 2009.

    The Fed even screwed up QE for the average person.

    Their actions are now even hitting the Japanese yen which has fallen from around 104 to the US$ at the start of 2022 to 117 today.

    Increased commodity prices are going to decimate the Japanese economy and the falling yen is going to make it worse.

    I also read that China is now restricting exports of refined products such as gasoline and diesel which has impacted the price of oil and products on the Singapore market which is used for the Australian benchmark prices.

    Gasoline here has gone from A$169.9 per litre to A$2.219 in about three weeks with the last 30 cents of that in the last week. That works out to about US$6.15 per gallon now.

    We currently pay a fixed rate of 44 cents a litre in federal tax which is adjusted for the CPI every six months and a 10% GST of the retail price on top of that.

    I didn’t know that until today when checking the current tax rate that jet kerosene users only pay about 3 cent per litre in excise tax and not the 44 cents every other category gets hit with.

    • historicus says:

      “Seems to me that the Fed is like every other US government entity”

      Yep. Much like an EPA, they become their own fiefdom….write their own “ticket”, and in the case of the Fed, blatantly ignore their own mandates.

      In a system that boasts of “checks and balances” , who checks the Fed?

  72. Wisoot says:

    Bankruptcy by AI – luck of the draw.

  73. Anon says:

    Everything you suggest is very logical and reasonable. As such, there is a snowball’s chance in hell of any of it happening. We are screwed.

  74. Beardawg says:

    Rental real estate mostly hijacked by corporations, margins gone.

    Bonds pay below inflation.

    Stock market over-valued and likely flat / recessive for some time.

    Time for Socialism for all, not just Sr Citizens, so we can not worry about the future and “feel” equal. ;-)

  75. Swamp Creature says:

    I met a dude in my Sports Bar today where they were showing the Players golf Tournament. He was from Delware and was in the shipping business. He said tankers were circling around the East coast Port of Wilmington DE with oil from South America. They weren’t docking anytime soon, but waiting for the price to go up even more than it has to date in order to cash in big time on the price spike. Same think as happened in 1973 during the Arab oil Embargo.

    • Wisoot says:

      The cetaceans need an international court of law to lodge a breeding interference complaint.

    • historicus says:

      I am guessing the price is fixed by the buyer with insurance and shipping charges….prior to shipping.
      Unless, some one filled a ship a month ago, and shipped it, and is speculating

    • Then we consign inventory to them from SPR so they can misrepresent their inventory (post Katrina) .

  76. Depth Charge says:

    What a very small human being Jerome Powell is. Can you imagine having to look in the mirror every day, knowing you were lying through your teeth to steal every last penny you could from the working class and the poor while they were struggling just to survive? That you tweaked and toiled daily to obfuscate the facts and trick people into thinking you’re actually try to help them when you’re really only helping your bank account while you destroy the future of the children?

    He must feel so proud when he goes out for his little hikes in Jackson Hole with the wife. Not really. This guy has no soul. He is the devil as far as I am concerned. He in in dereliction of his duty and I am flabbergasted he has not been removed from office. He is the biggest failure in the history of the central bank, by far. And he is a failure of a human being as well. He’s pure evil. And a greedy coward to the very core.

    • COWG says:

      “ obfuscate the facts”

      You mean like waiting for the data to confirm the data that said the data wasn’t confirmed so we have to proceed cautiously until we receive more data to confirm that we are not overreacting to past data that needs future data to be confirmed…

      That guy?

    • Nathan Dumbrowski says:

      Got to thinking that maybe this is one of the reasons he hasn’t been officially certified. They want to railroad him and throw him out. Now that we can fully blame RUSSIA for all the problems in the country the powers that be may let a new chairman in and slam the breaks HARD.

      Wishful thinking

    • historicus says:

      DC
      When I read “Lords of Easy Money” and saw the personal and career path Powell has had, I realized he is completely disconnected from everyday Americans and fully connected to venture capitalists, Ivy League academics, politicians and the like.
      Hoenig, the lone dissenter on QE, by contrast had a much different background.
      I’ll bet J Powell has never had an hourly wage, held a shovel, or been to a lumber yard, nor knows any “blue collar” people at all.
      I would love to ask him why Savers should be stolen from…and if he or his family ever had to Save their money….for rainy days, major purchases, etc.

      • Jake W says:

        i know a lot of people like him. they think they’re masters of the universe because they can create a mean excel spreadsheet, but they can’t change a tire or replace an electrical outlet.

    • Swamp Creature says:

      J Powell is worth over 55 million. He wants more. He wants it all. He grew up in Chevy Chase Maryland a couple of miles from me.

  77. Wisoot says:

    And in times like these where crowds stop following this man huddles with equals and pretends he is deaf. In his heart the guilt ripens. He uses all the brokers who still do his bidding to weave a soft landing. Them lost. Chasm opened a bottomless pit beneath. And in it a heart of stone.

  78. Zark Muckerberg says:

    Perhaps a miracle from the working class can happen. I mean millions has refused to work for bullsiht minimum wage and that forced employers to respond. If consumer demand for discretionary expense could lower. All this extra money has made people irrational. Some got tricked into the landlord lifestyle and others throwing it toward “tech” start ups in the hope of cashing out big. We are our own worst enemy. I am doing my part by spending less and saving the rest.

  79. A says:

    Quite honestly the millennial generation and Gen Z need a natural stock market crash so they can buy in at reasonable prices. The FED has used every trick in the book to inflate the stock market and keep the bubble from bursting. Everyone knows it can’t last. Just quantitative tighten & let the market crash. It’ll be better for society when it does.

    • Nathan Dumbrowski says:

      careful what you wish for. This FED is similar to all the other prior holders of this seat. Cycles. Don’t look at one past cycle. Look further and you will see the same cycles. The war just gave them a reason to blame the problems on but underneath there are still some ugly things afoot. The reasonable thing to do at this point is extreme QE. This will be painful if the past several hundred years are any indication. Strap everything down

    • historicus says:

      ” the millennial generation and Gen Z”

      have had their future wealth stolen from them ($30 Trillion on their back) and that money pulled forward to bid up and away stocks and real estate from any reasonable levels of investment or ownership.
      THEIR OWN future wealth is being used against them by the machinations of who ever is controlling the Fed and benefiting from elevated housing and stocks.
      Those generations should wake up and see what is being done to them.
      They do not have the future that previous generations enjoyed. They have been stolen from, and havent realized it. IMO

  80. historicus says:

    We assume the Fed is the Fed.
    But it has become something way way different since 2009, and continues to change.
    Waiting for the Fed is like waiting for Godot.

  81. SpencerG says:

    I really liked this article even though I disagree with some points. First off, this inflationary disaster had a thousand fathers. Putting the blame on just Powell is silly. In some ways the Fed has been “the only grownup in the room” since about 2008.

    For AT LEAST the past decade we have had Congresses and Presidents who look at the exact same data that we all see and then decide to keep spending money as though it grows on trees. On vanity projects no less. How the Fed can have a sensible monetary policy when the government insists on having an idiotic fiscal policy is beyond me.

    One example… Until three months ago the debate in Washington was whether Joe Manchin and Kyrsten Sinema (remember her?) was going to allow the passage of an additional $3.5 TRILLION in “Build Back Better” spending or “just” $1.8 trillion. This would be on top of the $1.9 trillion COVID bill passed in March and the $1.2 trillion Infrastructure bill passed in November. This from a government that hasn’t balanced a budget in 20 years.

    Every bit of this spending debate took place AFTER Wolf first started warning of inflation getting a grip in January 2021. The Fed has done what it can do to sop up some of the excess cash floating around the economy with its trillion dollar “overnight” reverse repo program… but the writing is on the wall as to which direction inflation is going to go.

    My second complaint isn’t so much a complaint as a point… the Volcker Fed operated under different rules than the Powell Fed. I don’t know whose bright idea it was to publish the detailed FOMC minutes/readouts three weeks after the meeting… but that is a relatively new development. For that matter, so is the post-meeting press statement (1999). Paul Volcker never ANNOUNCED a thing in real time about what he was going to do… or was doing. The MINUTES of the FOMC meetings weren’t published until 45 days after the meeting… and the transcripts not at all. Volcker could raise the Fed Funds Rate up to 20 percent as slowly or as quickly as he wanted… and markets would have to read the bond sales tea leaves to figure it out. Being a “Fed Watcher” was a lot harder back then… and thus it was a lot harder to front run their decisions. So while I agree that Powell raising rates by 100 basis points would shock the markets and show that they are serious… that is probably a better course of action in April after he sticks with the current plan of 25 to 50 basis points this week. New Era… New Expectations.

    Last but not least… let’s not misremember the “good ole days” as being all sunshine and roses. Paul Volcker TRIED to fight inflation in late 1979 and early 1980 by raising rates dramatically… only to have his leash yanked by Jimmy Carter of all people. It wasn’t until Carter lost the election in November of 1980 that Volcker’s Fed slipped the leash and began the successful two year campaign to stamp out inflation that we all talk about now. Volcker had to navigate around the politicians of his era the same way that Powell has to do now.

  82. Dazed And Confused says:

    Wolf wrote:

    “That would bring its policy rate up to about 4.5% by year-end”

    If this was to happen, what would mortgage rates be at year-end and what would that do to housing affordability?

    • COWG says:

      Mortgage rates are generally 1.5 to 2 % above the 10yr bond yield…

      Housing affordability is dependent on everybody’s personal situation…

      Typically, there is an inverse relationship between mortgage rates and housing…

      Higher rates indicates lower house price…

      However, in todays Fed induced perversion of the world, all bets are off…

    • Wolf Richter says:

      Dazed And Confused,

      Mortgage rates would be much higher, and home sales would drop, and the market would slow down and go into price discovery, and prices of homes that actually sold would be much lower. It always works out that way. If you want to sell your house, you have to find a buyer that can afford it. Simple as that. That’s why low mortgage rates create housing bubbles. And higher mortgage rates take them down. Time and again.

  83. christian says:

    Jesus Christ people don’t have a clue. Seems most can’t or don’t want to fathom that the monetary system has been on life support since 2009.

    Name me a list of countries who took their crippled corrupted system off of life support (ZIRP and QE) and brought them back to life for a period of time (then didn’t require them to go right back) …….it don’t work that way but it sure gets morons to agree and sounds like you got a clue. it’s a nice and easy fantasy to simply criticize the fed and offer ideas that would crash the whole corrupt nearly dead system. “market will find its balance” clueless. The market blows up when the interest rates rise above 2.5 % when the bond market has a seizure …the whole system is dead. Ohh and system’s die all the time…the history of monetary systems that have died and been replaced can found in the 2000 year old graveyard of monetary systems. Your solutions that would kill the sick patient are nonsense and hopefully just catering to a large portion of the public who has long been kept ignorant of the fragility of the system in general for reasons related to confidence. THERE ARE NO GOOD options LEFT. We are in what Bernanke referred to as a Zugzuwang. We either kick the can again…or we suffer depression and gradual collapse if we listen to your advice. This isn’t 1980…this current system that is over-extened would just simply collapse and some sort of reorganization of the world’s monetary system would be deemed a much better solution after what would be left of the system following your outdated advice.

    • Jesus Christ says:

      Christian,
      You have some good insights.
      Let me know what you think We should do.
      Love,

  84. Duane says:

    Too bad Wolf isn’t the BMOC at the FOMC because his solutions make sense and are long overdue. Anything that gets us to 4 percent is appropriate. But it ain’t happening.

    (BMOC meaning “Big Man On Campus”).

  85. Ian says:

    You guys have a saying, if it looks like a duck, quacks like a duck and walks like a duck, then it is a duck. Well if it has looked for a long time now that they desperately wanted inflation, did everything to generate it and are doing nothing to stop it, then it is a pretty good bet that raging inflation is what they want. No point looking on incredulously at the numbers and the response. The course of action is to start calling them out on deliberately torching the house.

  86. Ciena says:

    Wolf,
    You mention in the comments above recession only hurts lose who lose their jobs and those heavily invested in stocks. What does recession do to real estate prices? Does recession have any noticeable impact on supply or demand? Thank you!

  87. Ciena says:

    *those who lose their jobs

    **real estate supply or demand

  88. Isaac S. says:

    @Wolf,

    I beleive your anaylsis of inflation is thinking wrong. I think the evidence points much more to Alhambra’s Snider’s analysis. Fed/Tres. simulus is finished, price inflation is far outpacing wage inflation, so demand destruction (i.e., recession) is the outome, irrespective of any short or long-term interest rates. This is out of the consumer’s (thus Fed’s) control so hiking rates for psy-ops will do nothing, and the crash in the long term consumer confidence and Euro$ curves aret telling us/you that. Look out below…as inflation turns into stagflation then turns into deflation.

    Like IBD’s sentiment indicator, these are some truly ugly numbers. Michigan’s overall consumer confidence index dipped below 60 while its economic expectations number plunged five full points to 54.4. Each was the lowest in over a decade, equal in awful potential with that volatile and disruptive summer of 2011 (you never want to find any kind of comparison with Euro$ #2).

    These surveyed results match only too well probabilities being priced out all over the bond market. Eurodollar futures like the odd-ishly flat Treasury yield curve are each the market side of consumer expectations; altogether expectations for demand destruction.

  89. Swamp Creature says:

    I don’t see any indication yet that higher mortgage rates are having the slightest affect of the sales of condos here, especially the ones recently completed by builders converting 4 units buildings to condos. All real estate is local. Especially with the prices of gas going up to $5/gallon or more. Those who bought gigantic homes 40 or 50 miles away may be think twice about shelling out money for gas and commuting costs. Rents are going up at 15% YOY and buying makes sense even with the higher interest rates,

  90. JJ says:

    So what are the odds JPOW will only do a 25 bp rise this week? 90%?

    I’m guessing only a 10% chance of 50 bp.

    • historicus says:

      1/4pt with 10% PPI and that doesnt account for nearly any Ukraine effect?
      You jest.

      1/4pt? Why bother?

      • JJ says:

        I’ll assume you’re asking this rhetorically, since I agree a 25 bp rise would be pathetic.

        I was just wanting a realistic assessment of the odds of what JPOW will actually do.

  91. historicus says:

    Even if the Fed gets their way, and inflation “subsides” to their illegal target of 2%, the 8% stays!!

    That means, with compounding, the Fed’s dream scenario is in nine years the dollar will be worth at least 30% LESS!!

    and that is IF inflation reverts to 2%….which is highly unlikely.

    And that is a Fed that is mandated to “stable prices”?????

    Violation of duty, violation of oath of office, violation of the American People who work/earn/save and turn the lights on and fill the shelves of this nation. SHAME on POWELL and the Fed people.
    Who does the Fed serve?

    Paging Paul Volcker.

  92. Keith W says:

    Doesn’t the FFR affect consumers participation in the economy?
    …and money printing effects Fed participation in the economy?
    Isn’t the whole problem with the existence of the Fed that it demarkets or unmarkets interest rates?
    Could the stated responsibility of the Fed for interest rate modulation be a front for covering the authentic(?) role of the Fed to transfer wealth from the masses to the few? I keep wondering…

  93. Jim Welge says:

    Since the Financial Crises in 2003 we have, under Gentle Ben Bernanake, and Ms. Yellen, totallly abandoned Monetary Policy as a tool for recovery
    and stabalization of the Banking Sector.

    The Fed pushed interest rates to zero, basicly Neutering Monetary Policy as a tool. We kept interest rates at the floor, and ran horrendous Deficits, using “Free Money” for the Executive Branch of the Government.

    We have done this, while sticking it up the Poop Shoot of the MIddle Class, who can’t buy CD’s and ladder them and are forced to take excessive risk in the Stock Market to earn anything on their savings.
    The Fed and the Democrats have stuck it up the Poop Shoot of the Middle Class, raping them with Zero Interest on their Savings, while the Democrats tell us how they are “Helping Us” by running Huge Deficits, using the Middle Classes money at Zero Interest.

    All of this Zero Interest Baloney has encouraged people to Gamble buying Stable Coins, with their Wallets, to buy BitCoins and Ethereum and Gamble!!!!! And encouraged people to Short Stocks and play this type of orgiastic business!!!

    All of this Zero Interest Baloney at the beginning encouraged Commercial Banks to use Fed Funds to buy T-bills and take advantage
    of the spread between low interest Fed Money and Higher Interest on T-Bills. Silly crud Arbitrage Games.

    How did it make sense in 2008 to drive interest rates to Zero, when companies didn’t need more Equipment and Capital Spending, which is what Interest Rate Policy does, when their was excess capacity and businesses needed Customers and Sales, not more Equipment or CapEx.
    Their orders dropped in half in 2009 and they needed more Sales, not more Equipment!!!!!!!!!!!

    As for our current Fed Chair Powell, he doesn’t have the balls to make a decission!!! He keeps kicking the can down the road, teasing people with his silly arsed talk about raising rates , but when he has to make a choice doesn’t have the nuts to do anything!!!!!!!!!! He has this silly assed belief that somehow he can “Jawbone” inflation under control!!!!!!!!!!! And at the same time he is accomodating Ms. Yellen, the Treasury Chair, enabling her to keep issuing interst bearing T-Bills to finance the Spending Orgy.

    The Fed has a usefull role, that being:

    1) Being a lender of Last Resort to the Banking System, and providing
    liquidity to banks which are short on Cash and Reserves, so that they do not in financial panics have to call loans!!!!!!!!

    2) Being an arbitor of Inflation, encouraging growth, while keeping inflation under control.

    3) Keeping market bubbles in check and pulling the Punch Bowl away from the party when it gets to crazy.

    It takes balls, the way Mr. Volker had in 1979, to control out of control inflation, and keep the Stock Market from overheating. Powell has No balls!!!!!!! Greenspan had Brains and Balls. And Greenspan looked at both the Financial Markets and the Real Economy (what was happening on Main Street!!!!). Greenspan understood that there are Financial Marketsand there are Goods Markets, and monitored Both!!!!!!!!!!!!!! Team Powell doesn’t look at both the Financial Markets and the Goods Markets and has as a result failed miserably!!!!!!!!!!!!!!!!!!!!

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