It’s no surprise that the June Federal Open Market Committee (FOMC) concluded with rates being held near zero. We were offered some reassurance that the Fed expects to have “no rate increase at least through 2022.” Not mentioned was the amount of bond buying required to ensure that rates remain low for the next two years. However, Chairman Powell offered other insights. Per the opening remarks, the Fed will continue to increase its balance sheet at least for the foreseeable future:
To sustain smooth market functioning and thereby foster the effective transmission of monetary policy to broader financial conditions, we will increase our holdings of Treasury and agency mortgage-backed securities over coming months at least at the current pace.
It’s unclear whether he means this week’s pace, as the New York Fed purchased $20 billion in US Treasurys or the pace of the last several months when over $1 trillion of US Treasurys were purchased.
The Q&A revealed new ideas that the FOMC will continue to deliberate:
We also received a briefing on the historical experience with yield curve control. And we’ll continue those discussions in upcoming meetings, and evaluate our stance and communications as more information about the trajectory of the economy becomes available.
The yield curve is nothing new; however what is new is the notion of “yield curve control” and its potential implications. The contents of the Fed briefing are unknown, but controlling the yield curve implies an ideal number or range that the Fed will now seek. How they will do this and why remains to be seen.
When comparing this crisis against the Great Depression almost one hundred years ago, Powell notes:
The financial system this time, it was in very good shape, much better capitalized.
How he arrived at this conclusion and measure is unknown: it sounds almost farcical to praise the system for being well capitalized. This is the same system that requires trillions of dollar of central bank intervention in order to “sustain smooth market functioning,” especially since asset purchases:
are clearly also supporting highly accommodative or accommodative financial conditions, and that’s a good thing.
Naturally, words or phrases such as “accommodative,” “functioning,” and “smooth markets” are nothing more than Fedspeak that amounts to lending some members of society money at the expense of everyone else.
When asked when the $600 billion Main Street Lending Program will finally be opened to Main Street, Powell responded:
I would say that what we’ve done on main street, I think to a greater degree, is we’ve listened to feedback.
To his credit, he said that they are in the “final run up to start the facility.”
Although this may not be “good” for Main Street, the story on Wall Street appears much different as noted by a Bloomberg reporter who stated:
Since your March 23rd emergency announcement, every single stock in the S&P 500 has delivered positive returns.
The Fed chair delivered a classic unverifiable claim free of all retorts:
What happened is markets stopped working. They stopped working and companies couldn’t borrow, they couldn’t roll over their debt.
To round out the highlights of the event, the Fed responded to questions of inequality. It is in this phrase that the true failure of mainstream economic policies is seen:
Inequality is something that’s been with us increasingly for more than four decades. It’s not really related to monetary policy….there are a lot of theories on what causes it, but it’s been something that’s more or less been going up consistently for more than four decades.
There is little that can be said here. This is both concerning and telling simultaneously. To imply that trillions of dollars of money creation (which primarily go to the largest banks in the world first, creating bubbles in the housing, stock, and bond markets along with an increase in the cost of living) does not tie to inequality is truly astounding.
