The policy being implemented by Fed chairman Jerome Powell, of applying the Volcker tourniquet of rising interest rates and monetary tightening, may sound good on paper, but as it works its way through the markets it’s not so pretty. You can get a sense of how much opposition this is causing in QE-addicted banking and financial circles demanding their regular fix, by the number and frequency of comments by Fed officials stating that they will not, I repeat not, let up on the QT. As the Washington Post puts it: “Fed leaders say they won’t let up, even at the risk of a softening job market, a recession and financial pain for American families and businesses.… [But] “In a bit of whiplash, a buildup of economists and Fed experts have started arguing that the central bank is now moving too forcefully to slow the economy—and overcorrecting for past mistakes.”
The only “buildup of economists” that the Washington Post cites is Greg Mankiw, an economist at Harvard University and former chair of the Council of Economic Advisers during the George W. Bush administration, who says that “it’s easy for a novice [the Fed] to overreact, and then if you turn too much in the other direction, it can be a source of instability rather than stability.”
Not so, says Fed Vice Chair Lael Brainard in a Monday speech on Oct. 10. “We are starting to see the effects in some areas, but it will take some time for the cumulative tightening to transmit throughout the economy and to bring inflation down…. Monetary policy will be restrictive for some time to ensure that inflation moves back to target,” while admitting this could lead to “elevated global economic and financial uncertainty…. The Federal Reserve takes into account the spillovers of higher interest rates, a stronger dollar and weaker demand from foreign economies,” she said.
