Simple Janet should have the decency to resign. The Fed’s craven decision last week to punt on interest rate normalization is not merely a reminder that she is clueless and gutless; we already knew that much.
Given the overwhelming facts on the ground—4.9% unemployment, 2.3% core CPI and a 23.7X PE multiple on the S&P 500—her decision to “pause” after 87 months of ZIRP actually proves she is a blindfolded monetary arsonist—armed, dangerous and lost.
That’s right. In the midst of vastly inflated and combustible financial markets, the all-powerful Fed is being led by a Keynesian school marm stumbling around in an explosives vest. She apparently has no idea that a 38 bps money market rate is not a pump toggle on some giant bathtub of GDP; it’s an ignition fuse that is fueling the greatest speculative mania in modern history.
Janet and her posse of pettifoggers don’t even have the “Humphrey-Hawkins made me do it” excuse any longer. The truth is, there is nothing in the act that says they must hit 2.00% inflation to the second decimal point or anything else more specific than “stable prices”. Nor is there any quantitative target for full employment, let alone something like 4.85%—since we apparently are not there at 4.90%.
But even if these targets are taken as a serviceable approximations of its so-called ‘dual mandate’, who in their right would be quibbling about the second decimal point so late in the recovery cycle that the next recession is fairly palpable? Indeed, now that they have dot-plotted their way down to only two raises this year—which will soon turn into one owing to the fraught politics of this election year—here is where we will end in December.
To wit, the money market interest rate will have been effectively at the zero bound for 96 months. That’s longer than every post-war business recovery except LBJ’s guns and butter blow-off in the 1960s, which didn’t end well, and the 1992-2000 tech boom, where there is not a chance of repetition in either this world, or the next. Among other things, the central banks were just discovering their printing presses back then and there was only $40 trillion of credit outstanding on the planet, not today’s $225 trillion albatross.
