Mad Genius Economics Blog | The Macro Market Wrap Up With The Mad Genius, Vol. 64 | Talkmarkets
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The Macro Market Wrap Up With The Mad Genius, Vol. 64

Date: Sunday, March 24, 2019 11:18 AM EST

In Volume 63 I mentioned an interview that Fed chairman Jerome Powell did last week with 60 minutes.  Clearly it was prerecorded, and quite frankly it seems so robotic and mechanical that it comes off as the softball questions being given to the chairman before hand, and his responses were read from a script.  Not only does it seem so overtly scripted, but I have to wonder why the Fed is coming out to give an interview to trumpet how great the economy is in the midst of changing policy direction, especially right before the next announcement which doubled and tripled down on the new direction the Fed is moving its policy of currency debasement.  If the economy was so great then the change in the direction of policy would not be needed, and neither would this interview to try to convince millions of Americans.

In the prior volume I took exception with what  he said about the auto industry in that interview.  Here I’d like to have a look at some of the other things he said.

Right out the gate, the first question was “Have you stopped raising rates?” This is actually the single most important question regarding every single transaction you make.  Regardless if you realize it or not, the interest rate, which is the cost of money, is built into the price of everything you buy.  Even if you don’t borrow or use a credit card, somewhere along the way, someone borrowed money to get that product to your hands, which means their cost of borrowing is built into the price you paid at the cash register.

Regardless, Mr. Powell answered:

We see the economy as in a good place. We think that the outlook is a favorable one. Inflation is muted and our policy rate we think is in an appropriate place. So what we've said is that we would be patient as we watch to see how global economic conditions evolve and how our own economy evolves.

It’s a very general statement. So let’s see one sentence at a time…the economy in a good place.  Well, yeah, it’s good, but it’s not great.  Great would be GDP (total economic activity) of 3-4% growth for several quarters in a row.  Since the Great Recession we’ve had several quarters above 3%, but not two or more quarters in a row.  Lone exception to that was 2Q18 just over 4% and 3Q18 just above 3%, but 4Q18 was about 2.5%, and the forecasts from the major institutions as well as the Fed itself is to be below 1% for the first quarter this year.  In fact the Atlanta Fed is forecasting just 0.4% for the current quarter. Clearly the economy is moving in the wrong direction, quickly deteriorating towards recession territory.

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