Fed chair Powell would shock the world if he said something like this:
The Federal Reserve’s response to this crisis has been guided by our mandate to promote maximum employment and stable prices, along with our responsibilities to promote the stability of the financial system. The problem is that these are misguided policies made by my predecessors. Maximum employment is just an arbitrary number made up by economists. There is nothing stable about prices that are expected to increase by 2 percent year over year. A stable financial system cannot happen when a central bank manipulates interest rates and controls the money supply…
Unfortunately, he has never said anything like this, although he would be correct if he did. But we can dream! Would the world not be a better place if he had?
Instead, the chair said little that was honest or interesting in his most recent press conference. He plans on keeping rates low while continually increasing the money supply in order to inflate away the US dollar. The crisis is different, but the response remains the same. Actions taken by the Fed must be swift but also temporary. The takeaway is that there is nothing more permanent than a temporary solution.
As far as the trillion-dollar temporary lending facilities are concerned, in the Q&A Powell answered:
So I wouldn’t look for us to be sending signals about cutting back on facilities or anything like that for a very long time. We’re in this until we’re well through it.
This was confirmed by a press release during the week that noted:
The Federal Reserve Board on Tuesday announced an extension through December 31 of its lending facilities that were scheduled to expire on or around September 30.
Not only were the lending facilities extended, but:
The Federal Reserve on Wednesday announced the extensions of its temporary U.S. dollar liquidity swap lines and the temporary repurchase agreement facility for foreign and international monetary authorities (FIMA repo facility) through March 31, 2021.
Between lending facilities, swap lines to foreign central banks, and repurchase agreements for “monetary facilities” outside of the United States, we get a clear understanding about how things truly work at the Fed.
The press conference itself gave more expected fluff. In one breath Powell expressed the usual concern for the disenfranchised:
In particular, the rise in joblessness has been especially severe for lower-wage workers, for women, and for African Americans and Hispanics. This reversal of economic fortune has upended many lives and created great uncertainty about the future.
It’s interesting that he acknowledges a problem exists, but then does everything he can to exacerbate the problem by continuing inflationary wealth-destroying policies. He even went so far as saying in the Q&A that Congress appropriated $454 billion for the Fed’s facilities, pretending to not be aware that this money is borne by the entire nation, especially those “lower-wage workers” and the disenfranchised.
The top economists in the world continue to be dead set on a dual mandate which postulates a tradeoff between “inflation” and “unemployment,” and their beliefs require them to continually lower the interest rate and money supply in hopes of creating economic recovery. Ironically, these policies do the exact opposite of what they are intended to do. But the effects become more pernicious when we realize that the Fed is at a stage where they cannot go back. While they won’t admit it, the balance sheet cannot be reduced any more than these temporary facilities can actually be made temporary. Never have we seen a central bank successfully reverse course, whether it’s interest rates, balance sheet, or asset purchases including bonds and stocks. The Fed is no different.
