Did The Fed Just Make Another Mistake?

This is really a trick question. It’s not hard to argue that another interest rate hike this week, along with a clear indication that there are more hikes to come and that quantitative tightening will go on come hell or high water, was, indeed, a mistake. None other than Stanley Druckenmiller recently made such a case in arguing for a pause in the Fed’s monetary tightening campaign. Via the Wall Street Journal:

Economic growth outside the U.S. decelerated over the past three months. Global trade growth also slowed markedly, running about one-third lower than earlier in the year. Growth in some important economies, like China, is significantly weaker. No ocean is large enough to insulate the U.S. economy from slowdowns abroad. And no forecasting model adequately captures the spillovers and spillbacks between the U.S. economy and the rest of the world. U.S. financial-market indicators also signal caution. Market prices may be showing their true colors for the first time since QE’s expansion. These indicators aren’t foolproof, but they have a better track record than economists. Bank stocks are down about 15% since Oct. 1. Other economically sensitive sectors, like housing, transport and industrials, are down by double digits, underperforming the broader markets. Credit markets are softening, and the decline in major commodity prices is foreboding… Given recent economic and market developments, the Fed should cease—for now—its double-barreled blitz of higher interest rates and tighter liquidity.

Thus it’s hard to imagine Druck wouldn’t see yesterday’s rate hike and relatively hawkish language as yet another in a long series of Fed mistakes. But Druck would also be the first to point out to Jay Powell’s critics that the real mistake was not made yesterday but over the past decade by his predecessors. A couple of years ago he discussed the topic at length in a speech at the Lost Tree Club:

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Disclosure: Information in “The Felder Report” (TFR), including all the information on the Felder Report website, comes from independent sources believed reliable but accuracy is not ...

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James Goldstein 11 months ago Member's comment

The #Fed makes lots of mistakes!