The Fed got inflation wrong with the "transitory" approach a year ago.
The inflation hawks are ranting and raving and pointing their accusatory finger at the Fed. Never mind that the inflation hawks have been wrong for 40 years! They completely missed the deflationary (good deflation) impact of the productivity explosion brought about by technology over the decades. The hawks (mostly conservatives) were screaming "INFLATION" with all the spending and Fed balance sheet expansion in the 2008 crisis. It did NOT materialize. I certainly didn't know what would happen but the Inflation hawks have been wrong a lot and NOW they are sanctimonious about the inflation ... people in glass houses...
Now, low and behold, some of the hawks are saying the Fed is tightening too much and too fast and will bring on a hard landing for the economy through demand destruction. They want it both ways. Throwing spit balls from the rafters is easy I guess. Good grief.
So... is the Fed too soft? Too hard? Or about right?
I've been wrong enough times about the market to be honest and say, "I don't know".
What do others think?
What everybody got wrong was the inevitable effect on the energy markets from huge investment money shunning new investments and production of fossil fuels and chasing renewables based on manufactured impossible promises(based on unicorn type laws not physical laws of the real world) and especially governments throwing money at them to turn the markets away from fossil fuels.
Just like in 2008, when energy prices spike much higher, it causes the price of EVERYTHING to spike higher.........from transportation and production costs going way up.
Add to that, the burden on consumers at the pump.
In addition, they are trying to kill fertilizer because of its ties to NOx and fertilizers main cost in production is natural gas...........prices have tripled in the US and are more than 10 times higher in Europe.
Fertilizer prices soaring means food prices go higher.
You will think that this is an obsession with trying to blame the fake climate crisis but it's completely based on facts that were shown for years BEFORE it happened and clearly connecting the dots during and after it happening.
On this specific topic. The Fed is not going to be able to control any of the above. Biden and those pretending to save the planet with their fake fixes (while REALLY wrecking it with things like wind turbines that provide intermittent, unreliable, extremely anti environmental energy) are almost entirely responsible.
You should note that my climate reality posts, that for years were entirely NTR threads/posts..... in the last year have often become Trading/Market threads.
That's because the actions to address the fake climate crisis, as expected are impacting the markets.
We can blame Russia or blame the Fed or blame this and that but if you don't see a huge part of it......even the majority of it coming from the impact of the war on fossil fuels....then you are missing the big picture.
This is understandable because they are actually ramping up the bs on extreme weather to drown out the reality of what I described above.
That reality, impacts from actions to kill fossil fuels, threatens to expose the truth about the big picture which would completely obliterate the fake cause of saving the greening planet during this climate optimum.
all very true right down the line MM. And especially the part about the fed not going to control it this time. Too late to the too much partying by our foolish politicians. And this foolish :inflation bill at the end and Biden's celebration day for that idiotic bill was just the capper on what a huge mess.
from early 1800's, for more than 100 years, we tried to stick to a gold standard. No fed. we had no inflation, lots of industrial and technological improvements. an improving standard of living. pay that rose faster than inflation. yes, there were some brutal downturns, but usually we quickly bounced back.
from the early 1970's onward, we have seen inflation rise faster than pay,(except a couple years under trump). debt levels are so high they are going to kill the economy. we now have almost No economic growth, and rising inflation.
inflation comes in waves. the "disinflation" you talk about was still inflation. just coming down from high levels.
a fiat currency means constantly debasing the currency. this is one of the major things that leads to the fall of most empires thru history.
it does Not happen overnight, but yes it is happening.
economies go down the drain because of debasing the currency, too much debt. too much taxation, too much bureaucracy. too much spending. a fed system helps to enable this decline.
sorry, but this is the route we are headed. i've never met a liberal who understands this problem.
(that does not mean i always agree with conservatives on every issue - they have many faults also).
Thanks,
Regardless of other factors, if you cut the supply of fossil fuels, the lifeblood of every developed countries economy, it will send prices of everything skyrocketing.
If you cause fertilizer prices to sky rocket for the same fake reason.......it will impact food production and prices.
Maybe some will wonder why a post like this is coming in a thread about the Fed.
It's because the war on fossil fuels is calling the shots NOT the Fed.
NEW: Life without petroleum based products: 6,000 products made with petroleum. Killing Coal. Fossil fuels and fertilizer. Biden praises high gasoline prices.
https://www.marketforum.com/forum/topic/84689/
Another secret about fossil fuels: Haber Bosch process-fertilizers feeding the planet using natural gas-doubling food production/crop yields. September 2019
https://www.marketforum.com/forum/topic/39215/
Latest from the world's top scientific authority on plants.
https://www.marketforum.com/forum/topic/88832/#88868
metmike: Regardless of what the Fed does in the future, unless we are having a severe recession or depression, the war on fossil fuels guarantees high energy prices indefinitely as well as high prices for most other items, especially food.
The anti inflation act which is the biggest legislated war on fossil fuels is the recipe for much higher prices.
NEW: Fake inflation reduction act. Wind, the energy source from environmental hell.
Oh what the heck, I'll try again.
Is the Fed being too loose, too tight, or just right with interest rate increases?
joj,
Thanks much for your persistence. Sorry for the dissertation.
To answer more specifically and thanks for forcing me to do that.
Interest rates can try to mitigate inflation but in this case, the underlying factor is causing BOTH higher prices AND killing the economy.
If the Fed increases rates..........they help make inflation better but the economy is worse.
If the Fed allows rates to be too low........they might not stifle inflation as much but the economy is better.
After thinking about this more, my feeling is that lower rates are better.
If inflation is going to happen based on the fundamentals which feature a backdrop of high energy prices and a shortage of goods with extremely high costs to manufacture them, then at least don't try to beat that by contracting the economy, when the high prices by themselves are already acting to contract the economy.
Their anti inflation fighting tactics are not helping to solve the real problem with higher interest rates and they would be making the other problem worse.
The economy is NOT getting overheated or in need of cooling down for the typical reasons. This time, a big part is from energy and supply chain issues that MUST be resolved.
Using higher interest rates? A great case could be made before the pandemic and before the energy crisis for that exactly.
The market before early 2020 could have been modulated by the Fed using conventional, interest rate strategies.
The Fed is not to blame for the dynamics leading up to this either, however it seems clear that the Fed can make it worse by hiking interest rates in a rapidly contracting economy and probably have already pushed into that realm.
The well understood problem is that there's a lag time of many months to observe the economy AFTER Fed decisions. By the time we see the impact of bad decisions, it means the evidence of REAL damage has been incurred to the economy that will continue with a lag time until adjustment impacts might kick in.
I get that the economy was extremely overheated in several key metrics earlier this year and why the Fed acted as it did(while waiting an awfully long time)
Those have peaked and the rate of change is following an extremely steep curve because of unprecedented dynamics that include energy(crisis in Europe), supply chain, COVID, China, war in Ukraine.
So making wrong decisions.......will have amplified consequences in this environment.
If the Fed had aggressively tightened a year ago, would we be better off right now?
Very likely in some realms and the signs were certainly there to act sooner. But now we have some strong signals of a retracting economy and all these very mixed signals in a complicated world.
In commodities, the saying is "The cure for high prices.......is high prices"
When energy prices soar as high as they did earlier this year, they act to increase prices on everything, which helps stifle the economy. .....like in 2008.........which is now happening.
The Fed should know this and the lag time for that to hit the economy,. However there's so much going on that complicates it.
MM,
Thanks for your thoughtful response. I don't have any argument with any of your points but I would mention that you left out a big component of inflation that is probably keeping the Fed Chair up at night. Inflation expectations. If this gets going it is hard to stop. "Should I buy my car now or next year?" Well next year the price will be higher (inflation expectation) so I better buy it NOW. That pushes up price further which causes inflation expectation to become even more entrenched. That is my only defense for the Fed acting hawkish and risking a hard landing for the economy. I think of it like a fire to dry straw. If you fight it early you can defeat the fire, but if it gets going forget it.
But I don't know the future so I don't have an opinion on the subject.
As for stock investors, the past 15 years they have had only one place to go. The stock market. Now with interest rates finally climbing, there is an alternative place to park your money. Although, it should obviously be mentioned that 4% return still trails inflation, so one is losing on that option in real terms.
On a humorous note: I asked for opinions about Fed interest rate policy and got 3 responses:
1) The fake climate crisis.
2) Biden is horrible
3) All countries throughout history debase their currencies and we should go back to the gold standard of 200 years ago.
MF readers can take the matching quiz on who posted what. MM? Mcfarm? Bear?
Your ending was hilarious, joj and so true........which often is what makes the humor!
I'm sincerely grateful to you for persisting and asking again to get a better answer, at least from me.
There is no question that I view everything thru eyes that see the impact from the fake climate crisis on the world, as described in my initial response..........sometimes at the expense of not looking at the entire picture and other key elements before going on.
Much appreciated too was your humorous tone that addressed it instead of being confrontational.