Over-Fed but Malnourished by David Haggith for The Great Recession
Is the inflation I’ve been writing about really all just transitory as Papa Powell claims it is? The Fed Head assures us he has this under control. Would that be just like Father Fed and friends had bank reserves under control right before the repo crisis blew up in late 2019? Or just like they had their Great Rewind under control right before the stock market imploded in late 2018 due to Fed tightening that was promised to be as boring as watching paint dry?
Or just like Janet Yellen, the author of paint-by-numbers boredom, now has everything under control, except apparently her yellin’ mouth:
Treasury Secretary Janet Yellen sent markets into a tizzy on Tuesday when she said interest rates may have to rise to keep the economy from overheating with all the government stimulus. But later in the day, she walked those comments back, claiming inflation isn’t going to be a problem and insisting that she wasn’t suggesting or predicting rate hikes.
The important thing to observe here is not Yellen’s statement, which was really not yelling at all, but a whisper that the market responded to as if she yelled. Look, instead, at what her little statement wound up revealing about the Fed’s control of inflation. It proved in real time that, if someone who is not even part of the Fed anymore even HINTS that interest rates MAY have start to rise, the stock market, being utterly Fed-up and Fed-dependent, will immediately implode … just as it did when Powell announced that Fed tightening, long underway, would go on indefinite autopilot in October of 2018.
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That clearly shows the Fed cannot possibly have inflation under control because the Fed’s primary inflation-adjusting tool (the one Yellen just advocated) turns out to be the stock market’s self-destruct button for the bubble the Fed created. As I said well before 2018, the Fed cannot ever unwind its solutions without unwinding the bubbles it built with those solutions. It has never had an end game because you cannot let all the hot air out and expect the balloon to stay inflated. We saw that proved out in late 2018 in stocks and in late 2019 in the Repocalypse.
Yellen’s flipflop is telling. Even if inflation is an issue (and it is), there isn’t a darn thing the Federal Reserve can do about it…. Yellen … warned that all of the government spending coming down the pike could cause the economy to “overheat.” That’s code for “it could cause price inflation to surge.”
In reading back her statement to stem the flow of blood-red ink in the stock market, Ex-Fed Chair Yellen, stated in a calming voice,
“I don’t think there’s going to be an inflationary problem. But if there is the Fed will be counted on to address them.“
How can the Fed be counted on when merely whispering the obvious possibility that inflation might cause the Fed to have to tighten nearly ignited a taper tantrum? It is no doubt being “counted on” by the masses and by the US government and by banks around the world, but it isn’t going to succeed.
