The Fed Caused This Market Sell-Off - But Not With Rate Hikes

I recently argued Jerome Powell did the right thing by raising rates a mere 25 basis points.

He did what Janet Yellen should have done years ago. And for the first time since Volcker, a Fed chair declared the Fed’s independence from the market and politicians.

Besides the Fed’s dual mandate, Greenspan, Bernanke, and, in particular, Yellen had a third unofficial mandate. It was to make sure that asset prices keep rising.

Now, of course, that’s not the way they would express it. But that is what they did.

This created a series of bubbles, which inevitably blew up. The elites made their fortunes. But those who didn’t know better and could least afford losses got screwed.

And then they had the hubris to take credit for fixing the crises they created. Exactly like the arsonist taking credit for fixing the fire he started. They have no shame.

We should not be where we are today. And we would not be here today, if the Fed didn’t screw up.

The Most Stupid Policy Mistake

Now, having said Chairman Powell did the right thing, let me tell you where he and the current Fed leaders are royally making a mess. This is critically important.

No serious scientist would run a two-variable experiment. By that I mean, you run an experiment with one variable to see what happens.

If you have two variables and something happens—either good or bad—you don’t know which variable caused it.

You first run the experiment with one variable, then do it again with the second one. After that, you have the knowledge to run an experiment with both.

And yet, the Fed is running a two-variable experiment. It is decidedly the stupidest monetary policy mistake in a long line of Fed mistakes.

 

What are the two variables?

They are raising interest rates (albeit slowly) and aggressively reducing its balance sheet. I think many of today’s problems are results of this combination. It should do one or the other, not both.

1 2
View single page >> |

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: The Mauldin Economics website, Yield Shark, Thoughts from ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.