Wednesday, March 22, 2023

No Decision At All

I just read an op-ed piece that lamented the poor Fed having to make a decision. On the one hand the Fed says it wants to stave off inflation. That would require higher interest rates. On the other hand, the Fed is worried about turmoil in financial markets worsening if they raise interest rates.

What is a good Fed supposed to do? Geez guys -- try doing your job. You goosed the economy and you caused inflation. Hmm. No choice here. Not reversing policy means we get even more inflation and eventually a recession. Reversing policy weakens the economy for a while but makes possible a return to normalcy.  

The longer the Fed waits to do the right thing, the more it creates uncertainty about the future. But what about the financial crisis? Won't tight money cause a meltdown? I doubt it. Yes, higher interest rates on top of high interest rates are never a good thing. But if people believe the Fed is doing the right thing for the right reasons, that should create a floor and possibly an easier return to stronger growth. 

Either way it is risky. It's not like all this is surprising. We have known for a very long time that Fed interventions to stimulate the economy cause risks. But then most drinkers understand that one more drink can be risky too. Somehow we never really learn from our mistakes. 

3 comments:

  1. Dear LSD. Me tinkz it’s highly/mighty impossible—difficult even—for the Fed or anyone else to know wutz “ . . . the right thing to do.” If the Fed wuz the only player affecting eco performance it might find the right course of action amongst all the weedy weedz. But it’s got fumbl’n bumbl’n Biden ‘n his schizo policies FUBAR’n up the economy despite wutever well-meaning actions the Feb takes. Yepper, the Feb be betwixt the proverbial rock ‘n a hard place . . . betwixt its own incompetence and fumbl’n bumbl’n Biden’s incompetence. The Tuna offerz hiz own “right thing to do”: (drum roll) (1) Have the Fed close up shop and take it’s toyz home ‘n let marketz determine rates, ‘n (2) ly’n, cry’n, hid’n, plageriz’n, fumbl’n bumbl’n Biden & Company git the fok out’a govomit.

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    1. Thanks for your usual clear thinking Tuna. I couldn't agree more.

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  2. Yup. What to do? Move to questionable affordable housing, drop Medicare, save more to take advantage of higher rates, figure out how to take advantage of the transition to electric vehicles and supporting hardware, change political allegiance, Stuff to think about.

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