The Federal Reserve has a dual mandate by law: maintain stable prices and maximize employment. Their mandate does NOT include supporting high-valued asset markets with excess monetary stimulus. But that is how they have acted over the past 20 years.
**Hot Economy, Rising Inflation: The Fed Has Never Successfully Fixed a Problem Like This**
**Central bank says it is possible, but many factors are out of its control; ‘they are strikingly behind’**
**By Jon Hilsenrath and Nick Timiraos, The Wall Street Journal, Apr. 18, 2022**
**During the past 80 years, the Fed has never lowered inflation as much as it is setting out to do now—by four percentage points—without causing recession. ...**
**Fed officials say they can curb high labor demand, causing employers to eliminate vacancies without laying off existing workers, and tamp down inflation without a recession—what economists would refer to as a “soft landing.”...**
**Fed officials have indicated that while they seek a soft landing, they will raise interest rates as much as necessary to lower inflation, even if that results in a downturn. ... For now, Fed officials are in agreement they should seek to raise rates quickly to a level that no longer provides stimulus. They have signaled they are likely to approve a half-percentage-point increase at their meeting next month, and possibly again in June. The Fed hasn’t raised rates in such a large increment since 2000.** [end quote]
What happened in 2000, which also had a stock market bubble?
Their mandate does NOT include supporting high-valued asset markets with excess monetary stimulus. But that is how they have acted over the past 20 years.
… yet for some reason now everyone believes the Fed’s incessant jawboning will soon translate into inexorable hawkish action.
Be that as it may - the FT takes a dim look - “War and stagflation threaten global economy” - quoting the IMF amongst others:
The twin perils of slowing growth and high inflation, or stagflation, will hit the global economy this year as Russia’s war against Ukraine exacerbates a slowdown in the recovery from the coronavirus pandemic, according to Financial Times research.
Mounting price pressures, slipping output expansion and sagging confidence will all pose a drag for most countries, according to the latest Brookings-FT tracking index. As a result, policymakers will be left with “grim quandaries”, said Eswar Prasad, senior fellow at the Brookings Institution.
The IMF is this week expected to downgrade its forecasts for most countries as finance ministers and central bankers convene at the spring meetings of the fund and the World Bank to discuss how to respond to the darkening economic outlook. …
Providing monetary stimulus when there is excessive demand causing high inflation makes no sense. I expect a mild recession, which might be good because we could see what the swimmers are wearing.
“Only when the tide goes out do you discover who’s been swimming naked.”
Citing Russia’s war, IMF cuts global growth forecast to 3.6%, April 19, 2022
“The 190-country lender cut its forecast for global growth to 3.6% this year, a steep falloff from 6.1% last year and from the 4.4% growth it had expected for 2022 back in January. It also said it expects the world economy to grow 3.6% again next year, slightly slower than the 3.8% it forecast in January.”