So here goes: Mom, my head hurts. Okay, honey, take some aspirin. Mom, now my
foot hurts. Okay, honey, take some more aspirin. Mom, now my stomach hurts. Okay, honey, take some Tylenol. Do I need to go further? Whatever the ailment is, a pain
killer seems to be the solution. But maybe you fell on your head and wrenched your neck on an icy
street. Maybe you broke your foot trying to moonwalk on Earth. Maybe your stomach
hurts because you have an ulcer.
In all these
cases, it is clear if one took a moment to investigate the source of the pain, they
would approach the problem in a different direction that attacked the source of
the problem. Aspirin is fine for many things, but it does not work for others.
How long
does it take for the Fed to realize that the problem for the US economy is not that
interest rates are too high? Sheesh, interest rates are not high at all. So
maybe the Fed understands that the problem is China, or the problem is slow
growth in Europe, or the problem is tariffs, or the problem is a low annual
supply of JD. Clearly, the problem for the US economy is NOT anything the Fed
has any control over. Yet, the leaders of the Fed stick their faces into a camera
and say it is of the utmost importance that they reduce the interest rate.
Part 2 is
even creepier. What did they say this time? Okay, folks, we are reducing interest
rates a third and last time. A THIRD AND LAST TIME! Okay, they admitted that if
things really fell apart then they might entertain a fourth time. Tuna, do not stay out after midnight. How many
times have I told you not to stay after 12? Tuna, don’t push me. If you stay
after 12 tonight, I am going to tell Peter and then there will be hell to pay.
Do not under any circumstance stay after 12. Do you believe Tuna’s lady? Of
course not. Tuna will stay out after 12 all he wants and the Fed will lower
rates whenever it wants to save the day.
Part 3: Why
would it be okay for the Fed to lower rates three times and not a fourth? What
logic exists in the Fed’s mind that three rate reductions are hunky dory but
four is not. Maybe the truth is that two or even three was already risky and
the fourth is even riskier. But alas, they don’t say that! They are quite happy with the third one.
Part 4 is related
to Part 3. If two rate reductions didn’t work, as evidenced by a marked
slowdown in economic growth and a drastic decline is business spending on plant
and equipment, then why in the world would the third one be the charm? But not the fourth one?
Okay my dear
friends. Please help me to understand
this Fed. Interest rates are clearly not our problem. The Fed has zero credibility
with respect to having one more rate decrease. One more rate reduction won’t do
any more than the third one and even if we had a fourth one why would it save the day?
Just makes investing in something connected to to the financial system which relies on the return coming from the new FED rate serving as the base. Borrow Low and sell high?
ReplyDeleteI had to refinance a commercial property earlier this year and every banker was convinced that rates would be going up.. now look at us.. is there any correlation between our cutting rates and the global rate cuts? NY Times article drew my attention to similar actions of other countries.. I don't pretend to have the answers and agree the situation and solutions are confusing..
ReplyDeleteThanks Tracey. True, the Fed can introduce a lot of uncertainty into financial markets. At times the Fed wants to act in concert with other countries -- especially if they worry about a global recession. They also believe that when rates are out of line with global partners it might impact the value of the dollar adversely. Still, we don't always follow the others. My point in this blog today is that the Fed's reasons for lowering rates just don't make sense. Doing nothing would have been a much preferred approach in my humble estimation.
DeleteDear LSD. The Tuna doesn’t stay out after 12 ‘cause his eyes slam shut around 10p (metaphorically since fish never sleep and don’t have eye lids). . . and Peter doesn’t care cause he’s already asleep after his blue-hair special at 6:30p particularly following the second martini.
ReplyDeleteOne-handed econs generally regard low interest rates as stimulative. But that generalization doesn’t appear to be the case now as U.S. growth and cap ex have mellowed out. Maybe it was more valid when economic conditions were less volatile and subject to less globalization and politicks. Some talk’n hedz say the 3rd cut was to further correct the increase last December 19th—the stock market declined 1,500 points from Dec. 19th to 21,792 Dec. 24th—Merry Christmas! But since the Fed started lowering rates this year the market gained 5,943 to 27,735. Looks like the cuts so far only stimulate the market: But if you believe it reflects expectations then likely lower rates ‘could’ eventually be stimulative. Only the Shadow knows.
Navarro sez if the USMCA passes the market will hit 30,000. Of course this has nutt’n to do wid the Fed but wid politics. And it’s sed further that the USMCA will create boo koo yobz. Now, that stimulative!
Maybe we jez gotta consider the Fed is basically like the old say’n: Three kindz of folkz. Those that make things happ’n. Those that watch wut happnz. And those that wunner wut happ’nd. Fed = on the sidelines wunner’n wut happ’nd—no longer relevant? Sorry, I can’t help you unnerstand the Fed. Time for my sleepless nappy nap with eyes wide open.
Thanks Tuna, I suspect there are a bunch of very smart but devious financial wizards who just love to pull the Fed's tail. That increase in interest rates could not have possibly caused the market to drop that much. But a bunch of wizards who know the Fed will chicken out could make the market swing. Those folks have the Fed by the testicles (I would have said balls but I don't have my r-rating yet) and thus we are never going to get a rise in interest rates. And that ought to be a crime.
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