Federal Reserve

The Federal Reserve it can be argued has done a great job of propping up the economy during the Great Recession with its easy money policies led by Quantitative Easing 1, 2 and 3. However, the growth in the stock market and the low interest rate on our ballooning debt is artificial as a result of the Fed's policies. Dialing back of their latest bond-buying program, is the finesse move confronting the Fed for the next five years. If the Fed moves too fast, it could cool the recovery. If it moves too slowly, it could fuel asset bubbles or excessive inflation. With the stock market booming since the election of Donald Trump, these fears are heightened.

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Trick or Treat Economy

11/6/21

from Maudlin Economics,

11/7/21:

The US jobs report was expected to be strong after a few weak months. This might make the Federal Reserve’s decision to start tapering look well-timed... Key Points: October US payrolls grew 531,000, more than expected. The two prior months had upward revisions totaling 235,000. The headline unemployment rate fell to 4.6%, getting closer to the 3.5% pre-pandemic level. The disappointing news is the participation rate which held at 61.6%, vs. 63.3% in February 2020. Average hourly earnings rose further, with wage growth in the leisure/hospitality segment still particularly strong. After losing 22.3 million jobs in March/April 2020, the US economy has now added back 18.2 million jobs. Bottom Line: The labor market remains tight, the Fed’s idea of “tightening” is to expand its balance sheet another $500 billion over the next 8 months and still keep short rates at zero. More reports like this one may force the Fed to tighten faster than markets presently expect.

...nutshell opinion: We are facing demand-driven inflation as a consequence of misguided monetary policy and misdirected fiscal stimulus. Those aren’t the only problems by any means, but they are the main ones. We may face the worst policy-induced economic calamity since the Smoot-Hawley tariffs triggered the Great Depression. But even if not calamitous, it will be bad. Those in power have slowly but surely painted the economy into a corner. Every option is bad. All tricks, no treats.

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