What is the Federal Reserve Thinking?

“I no longer feel confident predicting political events here. Economic policy? I feel good about using bandwidth.” – Yours truly, literally less than a week ago.

“Just when I thought I was out, they pull me back in!” – Michael Corleone (portrayed by Al Pacino) in The Godfather Part III

I was in the midst of a two-month-plus hiatus. I knew there would be arguments about why the GOP defeated the Democrats, arguments in which I would not participate (and I still won’t). I knew there would be Trump Administration announcements, on which I would not (and will not) comment.

I did not know that during my attempt to take time off, the Federal Reserve chose now to make one of its biggest mistakes in decades. I did not know that the most boneheaded policy move for this month would be in the one policy area in which I still have confidence.

In short, the Fed cut interest rates Thursday (NBC).

The Federal Reserve announced Thursday it was lowering its key interest rate by a quarter-point — a widely expected move that coincides with inflation approaching the central bank’s 2% goal.

In their statement, Fed officials noted that inflation remains “somewhat elevated” while unemployment has “moved up but remains low.” They did note that conditions in the labor market have “generally eased” — perhaps a nod to signs of growing softness in hiring.

Some market participants noted the officials removed key language that had indicated it was still confident it would hit the 2% inflation target.

I can’t imagine why the Fed would no longer be confident about inflation actually falling to 2%.

Could it be the massive tariffs Trump promises to implement, which has already been called “an acute inflationary event”? Could it be his mass deportation scheme which could reduce the workforce by as much as 6%? Could it be his overt plans to devalue the dollar?

Given all of that, why did the Fed think it was a good idea to cut rates in the first place?

Even worse, there was no dissent on the Open Market Committee. Where’s Esther George when you need her?

I still won’t be talking about electoral politics for a while; the Trump appointees will not hear from me until they start making mistakes. That said, I cannot sit by idly while other folks who know better about the state of the economy give us dreck like this.

So … apologies to all my hate readers, but our vacations are over.

The post What is the Federal Reserve Thinking? first appeared on Bearing Drift.