What Fed Chair Powell Forgot To Mention

Son of the Imperial City

What are the chances of Federal Reserve Chairman Jerome Powell being wrong? The chances he’ll be wrong on the economy’s growth prospects, the direction of the federal funds rate, and inflation itself? Our guess is his chances of being wrong are quite high.

The new central planner-in-chief. Central banks are facing a special case of the socialist calculation problem pertaining to the financial system. Like the comrades in the former Eastern Bloc, who tried to adjust their plans based on prices they were able to observe in the capitalist West, their best bet is to simply follow market rates. Unfortunately market rates – especially at the short end of the yield curve – are subject to an observer-participant feedback loop with the Fed, so the dilemma cannot be entirely avoided. The ritual pouring over reams of “data” may feel like a sensible activity, but ultimately it cannot solve the problem either. [PT]

What you see, unfolding before your very eyes, is a great exercise in futility. To this endeavor, the Federal Reserve has claimed central authority of the command center. The federal funds rate, the Fed’s balance sheet, economic stagnation, massive asset bubbles, and the limits of central planners are the topics of focus. Where to begin?

Powell got into the central banking business through uncommon means. To his credit, he’s not an economist. This is a great improvement over former Fed Chair, and intellectual ditherer, Janet Yellen. Like President Trump, we didn’t have the patience for her egghead PhD economist act.

Powell, on the other hand, is a lawyer turned investment banker. He didn’t spend his formative college years being indoctrinated at the church of Keynes. But that doesn’t mean his brain hasn’t been equally softened over. For Powell received an indoctrination of another sort – one that began the moment he inhaled his first breath.

You see, Powell is a son of the Washington D.C. Imperial City. He was born and raised in D.C. and has lived nearly his entire life there. He knows how the nation’s capital works. Namely, that ever expanding debt levels are needed to keep the banks of the Potomac River firm enough to support its giant command and control money suck operation.

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