The Federal Reserve is ‘Making Things Up’ As They Go

Photo by James Lee on Unsplash

Weeks ago, Federal Reserve chair Jerome Powell said the Fed wasn’t going to have a 75 basis point (interest rate) hike on the table. So not only were they not going to hike by that much, but the Fed wasn’t even going to consider it. However, a couple of days ago, the Federal Reserve just did hike by that amount.

So what changed? The reality is that it doesn’t matter if anything changed. Powell said that such a rate hike was off the table. Beyond that, no, nothing has changed in reality. The Fed has become more aware of that reality over the past 9 months; however, you and I are both aware–and have been aware- of the inflation reality in consumer prices. Powell said that one reason that the Fed changed their minds on the 75 basis point hike was because of the latest CPI print. One problem with that is that the Fed prefers to look at alternative inflation data like PCE over CPI. A second problem is that the CPI was already sky-high before the Fed changed its mind on the hike, which means Powell’s explanation isn’t an explanation at all.

As much as the Fed has pivoted over the last 9 months, the Fed is still not where it should be when it comes to fighting…