Stop Complaining, You Created This
Today is Fed day. It’s when the Fed comes out from it’s ivory tower and looks for it’s shadow. If it sees it, 30 more days of raising interest rates. It doesn’t, 60 days.
It just seems to me that the Fed has taken on a much larger influence in the US economy than was originally intended. The Federal Reserve, has over the last 35 or so years, become the pilot of the US economy.
Like any experienced pilot, the idea is that they will know when to push the accelerator down or put on the breaks. Check wind speed, prepare for bad weather and steer around those bumpy areas.
They use data to figure out the best way to navigate a complex business environment and while they may hear what the other economists say, they go their own way most of the time. Using the combined experience and intelligence of 12 very smart people, the Fed makes decisions, like a pilot, that effects the lives of millions of people.
Are they good at it? It all depends on what you were expecting. Me, I think Jerome Powell and his disciples are getting better but they started off poorly so, in reality, all they could do was get better. I would give them a B- right now but, as I said, they started off with a failing grade.
Our economy should not be so dependent on the Fed. Period. It wasn’t supposed to be this way but it is. In the last 35 years I cannot recall any period when Fed policy has not impacted business in some meaningful way. Either easy money and low interest rates or a tighter fiscal policy and higher interest rates. Their hands are all over the economy and I am not sure if that is a good thing or not.
Now, we are waiting breathlessly for the Fed’s announcement at 2:05 EST. Will they follow through with expectations? Or will they throw a monkey wrench into everything and announce something unexpected? They do know that markets have priced a 25 basis point move to the upside and they do know that anything different will roil the markets substantially. I know, the Fed does not take market reactions into account and all that, which by the way is BS, they do understand that when the Vegas line for a 25 basis move is even money, they will hold to form.
With all that being said though, the Fed announcement is still important and Fed Chairman Powells news conference afterwords should be very interesting. Powell is a little different than other Fed Chairmen in that he is a relatively straight shooter. Interpretation of his remarks and reading between the lines is not really necessary. He won’t pull a Bernanke and try to impress us with how smart he is and never really say anything important outright. It was all in nuance and subtext with him.
I give Jerome Powell credit for speaking in a manner that leaves little to the imagination and it might have taken him a meeting or two to figure out this inflationary situation, but he has dealt with it head on. Let’s just hope he doesn’t mess up the end of this cycle and continue to raise rates two months past there due dates.
“Don’t fight the Fed” is probably one of the most accurate and time tested sayings ever uttered. You can’t fight them. You have to live with them and trust that they are using all the tools available to them. This means the data that US Department of Labor gives them and all the other data sets but just as importantly, what the business community is dealing with on the ground. Yes, they will use ISM and all of that. Good indications of the foundation of the US economy but do they ever talk to a bodega owner in the Bronx or the people that run a lumber mill in Oregon? Getting the feedback from small businesses to me is more crucial than listening to Elon Musk or Mary Barra. Do they get the opinions of a cop in San Diego or a school teacher in Texas? Why not. A diverse group of individuals can tell you a hell of a lot more about what Americans are dealing with than a 230 page report from the St Louis Fed.
So we wait for the decision from Mount Olympus and deal with the fallout. There is one thing I am very thankful for however, the White House can’t mess it up. Thank God for small favors.