It’s Official! The Fed Has Lost Its Independence

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It’s Official! The Fed Has Lost Its Independence

After President Trump’s tweet overnight:

Australia’s Central Bank cut interest rates and stated it will most likely further ease in order to make up for China’s Coronavirus situation and slowdown. They reduced to 0.5%, a record low. Other countries are doing the same thing, if not more so.

Our Federal Reserve has us paying higher rates than many others, when we should be paying less. Tough on our exporters and puts the USA at a competitive disadvantage.

Must be the other way around. Should ease and cut rate big. Jerome Powell led Federal Reserve has called it wrong from day one. Sad!

Former Alliance Bernstein chief economist Joseph Carson has a few choice words following The Fed’s decision to cut rates by 50bps…

In a surprise move the Federal Reserve announced an intra-meeting reduction of 50 basis point cut in the federal funds rate, lowering the target rate to 1 to 1.25%.

The Fed stated, “the fundamentals of the US economy remain strong”, but the “coronavirus poses evolving risks to economic activity.” 

It is hard to see how “easy money” offsets supply disruptions in supply chains and global travel.  And although many companies have alerted investors to the prospect of lower earnings in Q1 there is no hard evidence (job layoffs) of any disruption to the US economy. 

Policymakers have once again been forced by “politics” and not “economics” to make a move in official rates.  

The “BIG” test for policymakers is if and when the fear of “coronavirus” fades will policymakers take back the “emergency” rate cut. 

Last year’s rate cuts linked to global trade disputes remained in place even after “phase 1” trade deal was signed.


Carson is echoing former Dallas Fed President Richard Fisher who warned last week

“Does The Fed really want to have a put every time the market gets nervous? …Coming off all-time highs, does it make sense for The Fed to bail the markets out every single time… creating a trap?”

The Fed has created this dependency and there’s an entire generation of money-managers who weren’t around in ’74, ’87, the end of the ’90s, anbd even 2007-2009.. and have only seen a one-way street… of course they’re nervous.

“The question is – do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?

the market is dependent on Fed largesse… and we made it that way…

…but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put.”

Of course, as Rabobank noted, if we don’t see any major fiscal stimulus then it’s hard to imagine how one can remain too optimistic either. Notably, Mnuchin is keen on a tax cut rather than any higher state spending, and if that is any indication of what the G-7 will agree on, then we are in real trouble. All that returned cash is going to sit there on hold until the virus has been and gone, however long that is; and then the recovery will be too aggressive the other direction. The change in baseball caps that will be required up and down and up again could be extremely challenging, especially now Chinese supply chains to the US for things like baseball caps are damaged.   

Tyler Durden

Tue, 03/03/2020 – 10:44

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