The Fed Kicks It Up a Notch

A long, long time ago — 1992 to be specific — the American media howled with derision when then President George H.W. Bush professed “amazement” at a new supermarket bar code scanner, the coverage of which was supposed to demonstrate that Bush was hopelessly out of touch with the daily lives of ordinary Americans.

To its credit, the Associated Press a few days later tried to correct that impression, but by then the rest of the press had moved on and the falsehood has lived on ever since.

Bush’s supposed gaffe at least had no policy ramifications, although the story didn’t help his reelection efforts that year.

The same can’t be said about President Biden’s absurd comments to 60 Minutes last Sunday that inflation is now under control, albeit at more than 8%, the highest sustained level in more than 30 years.

After dismissing August’s monthly CPI reading as "up just an inch, hardly at all," he proceeded to gladly dig himself even deeper, proudly telling the interviewer Scott Pelley that “we're in a position where for the last several months, it [inflation] hasn't spiked, it's been basically even.”

In other words, inflation hasn’t risen to 9% or 10% year-on-year, so we’re in good shape.

This comes on top of other whoppers he and other members of his administration have said over the past several months, such as telling us that the recent student loan giveaway and an earlier deficit-raising budget measure were all already “paid for,” as if there was no cost involved.

Not to mention labeling his most recent budgetary measure the “Inflation Reduction Act.” Talk about Newspeak.

The point here is to demonstrate just how hard Federal Reserve Chair Jerome Powell‘s job is going to be to try to bring down inflation — yes, Mr. President, it’s really high and not getting lower — without any help from the fiscal authorities led by the White House. So brace yourselves for more interest rate increases.

During the Great Recession and global financial crisis of 2008 and the 2020 pandemic, the fiscal and monetary authorities worked closely together to try to get the American people and economy through with as little pain as possible. Congress and the White House threw massive amounts of money at the problems, while the Fed paid a big part of the bill by buying up an enormous chunk of the U.S. Treasury and mortgage bond markets.

Now that these crises are pretty much over, with inflation as the hangover, government policy needs to move to a tighter monetary policy and a more restrained fiscal policy.

Unfortunately, only one of those authorities seems to have got the message. It’s like a married couple with opposite views of their family budget—one spouse feels the need to tighten their belts, while the other just keeps spending as much as they ever did. That’s usually a marriage headed for big trouble.

Unfortunately, consumers and investors will have to deal with the repercussions, consumers with higher prices for just about everything and investors with lower and likely deeper negative returns. It would certainly be a lot easier and quicker to resolve these post-crisis problems if both fiscal and monetary authorities acted together to try to cure inflation and get the country back to normal, but that doesn’t seem to be in the cards.

Not surprisingly, then, the Fed pretty much had no choice but to raise its benchmark interest rate another 75 basis points at its meeting on Wednesday, to a range between 3.0% and 3.25%, the highest rate since before the 2008 crisis, while signaling another 125 basis points in rate hikes at its two remaining meetings this year (early November and mid-December).

That would put the federal funds rate at 4.25% to 4.5% before the end of the year. By comparison, the fed funds rate stood at 0% as recently as March.

Since the one raising rates is the Fed, it gets the lion’s share of the blame for the resulting drop in stock and bond prices from angry investors. And it certainly deserves its share of the blame, since it allowed its easy money policies to go on way too long.

If it had been a little more proactive, like starting to raise rates last year — maybe even before that — the pain that Powell now speaks about that consumers and investors will need to suffer through might be a little less acute and a soft economic landing might have been achievable.

But that ship looks like it might have already sailed, and we may be heading into rougher economic waters than we otherwise might have.

Yet the folks on the fiscal side, namely the White House and Congress, have gotten off basically scot-free for their role in pumping up inflation and doing nothing to try to stifle it.

Biden’s out-to-lunch comments to 60 Minutes might indicate that investors and consumers shouldn’t even bother to expect anything better from them. Which means the Fed’s rate-hiking policy will need to be even more aggressive going forward.

Don’t be surprised if the fed funds range has a 5 handle sometime early next year.

George Yacik Contributor

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

5 thoughts on “The Fed Kicks It Up a Notch

  1. "Free" money always has costs associated with it that are not always readily apparent. Buying votes through legislation has been with us since Roman times and won't leave anytime soon regardless of which side of the aisle is in power. However, the media treatment of George "No new taxes" Bush vs Joe "Inflation? What inflation?" Biden should come as no surprise and is quite typical for them and their ilk.

  2. The writer did not midterm election in november.
    This aggressive Powel language reflects compulsion
    American are known for it.Otherwise trillions of dollars have gone to EMs and real pain has to come thru interest rates and balancesheet size.
    So after November we should have relief if possible.

      1. why? are the opinions of the inhabitants of the planet prohibited? and the fact that the United States is destroying the economy of the entire planet by printing its papers? make the dollar a currency only for the USA - and no one will remember about you. Russia has abandoned the dollar and the ruble is growing, while inflation is falling. I hope the whole world will draw conclusions.

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