Inverted yield curve puts Federal Reserve interest rate policy in jail

The Federal Reserve, facing an inverted yield curve crushing Main Street’s small banks, panicked on March 20 and pledged no more interest rate increases this year.

The U.S. central bank’s Open Market Committee voted unanimously to maintain its lending benchmark interest rate in a range of 2.25% and 2.5%. Fed officials stressed to the financial press that they would be “patient and flexible” in the future before making adjustments to the closely followed bank borrowing rate.

When President Obama almost created a depression by raising taxes and increasing regulations during a bad recession, the Federal Reserve flooded the U.S. economy with liquidity by slashing its lending rate to below .5% and buying $2.5 trillion of assets. During the worst economic recovery since the Great Depression, Fed policy stayed unchanged.

The Fed claimed it was running a tight money policy during the current boom to prevent an outbreak of inflation. But even Trump’s most ardent “hard-left” critics could find no proof of inflation. According to wildly progressive Vox that usually attacks Trump 24/7:

“But there’s no actual inflation problem in America today. The Fed is supposed to be targeting a 2 percent inflation rate, but once you strip out the price of volatile food and energy commodities, inflation has been consistently lower than that.”

What frightened the Fed to make a huge about-face was the normal lower short-term interest rates “inverting” to a higher yield than longer-term interest rates. Before the Fed raised its “Fed Funds” rate by .25% on December 20th,

This is good news, why?

Low inflation, low interest rates, ongoing tax cut effects, repatriation of offshore assets, reindustrialization of domestic manufacturing, and a healthy fear by the Fed of a President that fights back, all add to short-term volatility in financial markets that adopt a short-term wait and see position causing these markets to FOLLOW industry rather than lead it as they ‘ve been doing for decades now.

The Fed has caused so much harm tinkering and intervening with the American economy rather than get out of its way. This started in the Carter years and it took Ronald Reagan to reverse it but it came back in spades under GHW Bush who failed to regulate and enforce the thrifts leading to the Savings & Loan crisis just as his son turned a blind eye to SEC enforcement of shady securities during the subprime crisis (same criminal cohort trained under S & L crisis), and in-between these two was a horrid creature known as Bill Clinton who signed the repeal of Glass-Steagall speared by an ignominious Republican named Phil Graham all following on the heels of Ronald Reagan’s hard-earned gains.

And 0bama? Nothing more than a high-level panhandling-extortionist backed by Chicago style thugs. A degenerate failure following a decade of failure.

Now there is a very strong President who will not be cowed by the economist bobbleheads on Wall St, and at the Fed because this President actually understands business better (see 1190s YT videos of DJT speaking to and educating Congress members on how business works) than the Ivy League double talkers who had grown arrogant to think their regression tables and number crunching of faulty datasets formed from selection bias were somehow important to business leadership and for which they received hefty salaries to boost their self-deception.

Economists are akin to astrologists masquerading as astronomists and the problem is the NY-DC media-political axis believes the latter much like Al Gorites believe Global Warm Feces.

So finally we have real business leadership in the WH and the future looks bright.

Regardless of Fed Chair puppet Powell’s mutterings and screwy prognostications, he and his masters understand the Fed is dead if he gets in the way of MAGA.

What we are seeing and will see more of is a movement of Americans making things, using computers and AI to rip the Chinese sweatshops a new one in terms of productivity, working smarter and creating supply to handily meet supply meaning NO INFLATION.

But since President Trump was elected, the Fed has tried to strangle his tax cut and deregulation driven economic boom by raising its lending rate fivefold to 2.5% and selling off almost a third of the assets bought during the stagnant Obama years. The Fed claimed it was running a tight money policy during the current boom to prevent an outbreak of inflation. But even Trump’s most ardent “hard-left” critics could find no proof of inflation.

I wonder if the Fed was trying to destabilize the economy in advance of the 2018 mid-term elections? If so, they succeeded.

-PJ

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.