No Rate Cuts Until You Eat Your Broccoli, Says Fed
It seems that everybody wants lower interest rates, except the Federal Reserve.
Wall Street investors and economic analysts have eagerly glommed on to every conceivable signal that the Federal Reserve (Fed) will soon declare inflation defeated and begin lowering interest rates.
The White House, too, would like to see an interest rate cut, to boost the president’s flagging reelection prospects, even though he and his supporters continually claim that the economy is presently quite peachy as-is. Apparently, the liberal notion of perfectibility is still alive.
Fed Chair Jerome Powell, however, has been consistent in his message for several months: no change. For now. And not soon.
The Fed disappointed the markets by essentially stating that economic conditions are too good right now to merit a change in interest rates and that there is no need for artificial stimulation by the central bank.
In his recent comments, Powell has made no commitment to reduce interest rates at any particular time, pouring cold water on widespread hopes for a cut at the Fed’s meeting in March.
“I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting” to justify a rate cut, “but that’s to be seen,” The Wall Street Journal reported after a Powell news conference.
Some investors are going to take a financial hit for guessing wrong on the Fed’s willingness to declare victory against inflation: “For most of January, investors in interest-rate futures markets have placed roughly 50% odds that the central bank would cut rates at its next meeting, March 19-20,” the WSJ reported.
Well, yes: we never need artificial stimulation for the economy. Never. Likewise, we never need artificial strangulation of the economy. Never.
The Fed’s latest interest rate announcement hit markets hard on the day it was announced:
Stock indexes ended lower Wednesday, with the S&P 500 down 79.32 points, or 1.6%. The index, which on Monday closed at an all-time high, registered its biggest decline since September. Yields on the 10-year Treasury note declined 0.091 percentage point to close at 3.965% after New York Community Bancorp reported a loss and slashed its dividend, igniting new jitters about the health of regional lenders.
Yikes:
Source: The Wall Street Journal
The Fed did throw a bone to the interest rate reduction hawks, ending its guidance that it was more likely to raise interest rates than lower them. It has now adopted a neutral position that “the risks to achieving its goals of healthy labor markets and low inflation ‘are moving into better balance,’” the WSJ reported. But that was a very small bone, as indicated by the markets’ abrupt nosedive.
The Fed has been looking for signs that the economy is slowing down, as an indication that inflation will recede with the onset of economic pain. The Fed disappointed the markets by essentially stating that economic conditions are too good right now to merit a change in interest rates and that there is no need for artificial stimulation by the central bank.
Leave people free to trade in goods and services, and they will. Government regulation of the economy is feckless and always ends up aimed at rewarding political allies and punishing those in opposition.
Well, yes: we never need artificial stimulation for the economy. Never. Likewise, we never need artificial strangulation of the economy. Never.
Those are very simple propositions. Leave people free to trade in goods and services, and they will. Government regulation of the economy is feckless and always ends up aimed at rewarding political allies and punishing those in opposition.
As I have noted regularly in my Life, Liberty, Property newsletter (subscribe here), there are many signs of imminent contraction in the economy. This may well be another case of the Fed raising interest rates too high, too far, too late, and for too long.
Source: The Wall Street Journal