Fed chair: a long road to normal

Investment Analysis Clubs Macro Economic Trends and Risks
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The Fed has been signaling that their emergency Covid monetary stimulus will be ending soon.

https://www.nytimes.com/2022/01/11/business/powell-confirmat…

https://www.wsj.com/articles/powell-confirmation-hearing-cou…

Powell Says Economy No Longer Needs Aggressive Stimulus
Fed preparing to raise rates and shrink asset holdings, central bank chairman says
By Nick Timiraos, The Wall Street Journal, Updated Jan. 11, 2022

Federal Reserve Chairman Jerome Powell said he was prepared to begin raising interest rates to cool down the economy but that he also was optimistic that supply-chain bottlenecks would ease this year to help bring down inflation....Mr. Powell said he hoped there would be “a return to normal supply conditions” this year but added, “if we see inflation persisting at high levels longer than expected [and] we have to raise interest rates more over time, we will.”...

“It is really time for us to move away from those emergency pandemic settings to a more normal level,” Mr. Powell said. “It’s a long road to normal from where we are.”...

The unemployment rate, which fell to 3.9% in December, is now lower than it was four years ago, when Mr. Powell became Fed chairman. That is despite the upheaval wrought by the pandemic, which sent joblessness to a post-World War II record of 14.7% in April 2020.... [end quote]

The Fed has a long, long road to normal if you consider “normal” to be conditions that were stable for decades before the abrupt and extreme monetary actions of the Fed. Assuming that Jay Powell can read a table and a chart (a pretty fair assumption) he will see the level of normal and the very large changes needed to get back to normal…changes that would upset the asset markets that have become addicted to negative real yields.

https://www.treasury.gov/resource-center/data-chart-center/i…

https://fred.stlouisfed.org/series/WALCL

The Fed’s actions during emergencies is valid. But, since 2001, they did not reverse the “emergency” monetary stimulus once the emergency had clearly ended.

The pressures have been building for decades. With Congress adding fiscal stimulus to monetary stimulus and the Covid pandemic snarling supply chains, inflation is rising. Powell is not ignoring the problem. He is observing that the pressures may continue even after the pandemic is over.

The asset markets will be affected by rising interest rates. Powell will surely be re-elected as Fed chair and he will act.

Wendy

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My take, the Fed did what they needed to do in 2001. But Congress never did their part. And the Fed just kept doing things to keep things afloat in the light that Congress was not doing their part. I think the Fed should have forced the issue. “We did our part, and we have to stop doing our part. Time for Congress to do its part”. I have a feeling some very, very rich people interfered with that ever happening.

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<My take, the Fed did what they needed to do in 2001. But Congress never did their part. And the Fed just kept doing things to keep things afloat in the light that Congress was not doing their part. I think the Fed should have forced the issue.>

Greenspan said this and Bernanke said this. Exactly what you said! And not once, but again and again.

The Fed and Congress are completely independent. Fed chairs can talk until they are blue in the face but only Congress controls fiscal policy.

The amazing thing is that the Fed AND Congress (despite partisan bickering) acted in the same direction and with the same tremendous strength in 2020 when Covid hit. Independently.

The result was the fastest recovery from a potentially deep and long recession in living memory.

Wendy

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The issue is counter cyclical economics which Bernanke was openly talking about. The idea being to politically stop the socialist institutions of the great deal ie controlling interest rates and a few other major industries.

The point being to allow more free market factors in the face of a major possible depression. As Clinton and then W allowed the housing market to take off with loose lending policies from the FED, the money flowed and the costs or crash was felt individually across the society in 2008 without socializing things. It was late in the cycle.

The only reason for this was to not devalue the dollar twenty and fifty years out as we had done post WW II. Particularly interest rates must be free market.

I get that sounds untrue as the FED manages the rates.

I am specifically talking about the savings and loans rate controls.

I am specifically talking about corporate pension funds buying 2% yielding bonds prior to the inflation of the late 1960s and 1970s. The laws around pensions at that time truly made much of corporate American insolvent. Ushering in self serving ideas and corruption we are now just overcoming as a society.