by Karl Denninger, Market Ticker:
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent.
Meh. They’re also ending their balance sheet runoff.
So here’s where we are.
The Fed has consumed some of its powder for the next recession, and has stopped accumulating more.
The Fed has targeted — explicitly — creating and maintaining a market bubble.
The Fed has spent ten years attempting to “cause” inflation but by their measurements it hasn’t occurred; ergo, their tools do not work. This is the lesson of Japan, by the way.
The Fed is now targeting foreign central bank actions and attempting to at least follow, if not undermine them.
The first two are not a surprise.
The third is now long-proved.
The last is utterly insane. It is seditious. And it is going to be VERY bad going forward.
Powell also drew 2 dissents, both of whom wanted to do nothing.
Trying to “stimulate” inflation with rates under the federal deficit as a percentage of GDP is suicidal. Not instantly, but certainly. This is an exponential series and once it gets away from you correcting it is extraordinarily difficult if you can do it at all.
The Fed is supposed to be independent. The independent thing to do would be to tell Treasury that it will not finance their deficits and that if the Executive — which encompasses Treasury wants lower rates then they need to cut the federal deficit to less than the Fed Funds rate as a percentage of GDP and The Fed will be happy to maintain a small but positive spread in response.