What to make of Fed Chair Powell’s latest comments to Congress:

“Stronger than expected”, “Longer than previously anticipated” & “Higher than previously expected”

Federal Reserve Chairman Jerome Powell said that economic data was “stronger than expected”, which will require rates to go higher than “previously expected” for “longer than previously anticipated”.

Are you starting to see a pattern here?

Does anybody remember when Chair Powell said the Fed was “Not even thinking about thinking about raising interest rates” in June of 2020?

How about when the same Fed told us that inflation was only “transitory” in June 2021?

Just 9 months later, in March 2022, the Fed changed course and raised rates for the 1st time since 2018.

The takeaway here is this: the Fed was clearly too slow to act when they started raising rates. There is no reason to believe they won’t be too slow to act again when they are eventually forced by economic conditions to reverse course. In fact, that is a pretty safe bet.

“Full effects of our tightening so far are yet to be felt”

My first thought here is that this is a strange admission from the Fed. This, by itself, should be clear justification for a pause before further increases.

As for the effects themselves: Housing is 20% of GDP, The Tech Sector is 10%, Manufacturing is 10% and Financial Services makes up over 7%. Anybody who reads just the front page of the Wall Street Journal knows that the effects are real and being felt across every industry. It’s clear the global economy is slowing — just not slow enough for the Fed.

The Fed IS Political & Not Independent

Chair Powell told Congress that he has “all the tools” necessary to bring inflation down to 2%. However, without significant cuts to government spending, which is done by the creation of new money for the government to borrow from itself, the Federal Reserve has no tools that it’s willing to use to bring inflation down to 2% anytime soon. Powell knows this.

However, politics prevent him from speaking honestly in front of the American people. Here is something to think about; did the Fed keep rates too low for too long because they know that the Nations debt is already unsustainable?

The Bottom Line

The FED is in a tight spot. The odds of a “soft landing” are diminishing. The stated mission of the Fed is “price stability” and for the Fed that means inflation (as they define it) needs to be at 2%.

Chairman Powell admitted that inflation is “causing a severe hardship for Americans”, however, the Fed has made one thing clear; for the Government to fix the problems they have created, they need to inflict more hardship.

They need fewer jobs created and fewer wage hikes. They are far more comfortable telling you that your wages need to slow than they are telling the Congress to stop spending money that the country doesn’t have.

If this is the medicine, maybe we would be better off with the illness, especially since it’s much more likely the Fed will be forced to reverse course and give up the fight before they ever see 2% inflation again.

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