Monsters Under the Bed

The head of the Fed, Jerome Powell, was quoted as saying he didn't want to take his eye off the ball before we actually finish the job. I will let him mix metaphors but I won't let him get away with the main idea that is driving his policy. 

The eye in this case is monetary policy and interest rates. The ball is the strength of the economy. Powell believes the economy is not yet strong enough to raise interest rates above zero. Did you hear that....above zero? No interest rate increases for a good while. Nada. Zero.

To bolster this mixing of metaphors, he gets back to economics when he and his minions brilliantly conclude that there is a difference between actual data and forecasts of actual future data. No kidding? Unless they have a crystal ball -- we all know they do not know what is around the corner. We NEVER know what is around the corner. What they are really saying is what I used to tell my mother at bedtime. Mom, I am sure there are invisible monsters hiding under my bed. My mother always replied -- honey, there are no monsters. There are only good fairies. 

So there we have it. Our leaders at the Fed see monsters in our future. Despite their own forecasts and the forecasts of others, they prefer to believe there are monsters under our national economic bed. 

Why take such a strong position? They seem to be saying that good news is bad news. That is, if the good economic fairies actually produce stronger growth, then that stronger growth will be bad for future growth. What? I am not kidding. That is what they are saying. Apparently the current good economic growth is flimsy enough that as soon as prices and interest rates begin their eventual rise back to something more normal (ie not zero!), it will be like a punch in the stomach and the economy will fall to pieces. Poor Humpty Dumpty. All the king's horses...you know the sad story.

They argue that doing too little now just ain't enough. Keep going. Despite historically high government deficits and debt and despite a tidal wave of new money, they have to keep the pedal to the metal.

Nowhere in their explanation is any real mention of what could happen if you keep the pedal to the metal. I suppose the Andretti's could tell them some stories about the risks associated with taking too many turns too fast.  Or what happens when you want to cook an omelet and you forget to turn the heat down a bit after warming up the pan? Not enough heat won't cook the omelet -- for sure. But leaving the temperature on high will surely burn it. 

Our Fed has taken a stance. They are going to keep the monetary pedal to the metal as our government stimulates more and more. Once you vigorously defend that approach to policy -- when do you back off the pedal? How strong does the economy have to be before they raise interest rates a hair? I am not confident they know when to turn the dial the other way. Hope you enjoy your omelet.