Understanding Fed Policy

On today’s show we are looking at the casualties of the latest Fed policy moves.

On Wednesday of this week, the Federal reserve announced another 75 basis point increase at the FOMC meeting. These meetings happen every 6 weeks. The next one will be in the middle of December.

We continue to experience a yield curve inversion where the short term interest rates are higher than long term interest rates. That inversion is even more pronounced than it has been in recent memory.

There is no question that the rates make a difference. Demand is being suppressed in numerous markets, even though the cause of inflation is the result of a decade of printing money, and most recently the showering of money across the population during the pandemic.

But inflation is not a US only issue. It’s a problem in Canada, the UK, Australia, Japan, Germany. It’s a global issue and it’s the result of the combination of supply shocks with the printing of money at an unprecedented level.

The question is, what are other countries doing? How are other central banks using monetary policy to combat inflation?

In my mind, Fed policy is disconnected from the global perspective. We need to listen to what Chairman Powell is say. The Fed’s governors are going to continue to raise interest rates until they see sustained tangible economic slowdown in demand. The floggings will continue until morale improves.