Warsh

FOMC – From HogWarsh To WhiteWarsh

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After a not-so-stellar initial press conference in July (FOMC HogWarsh), Fed Chair Warsh spoke clearly last week regarding the Fed’s latest interest rate decision…

“Today’s policy action will support a timelier return to the Committee’s 2 percent goal. This Committee will deliver price stability.”  Also, “The plain fact is that inflation is too high and has been for too long.”

In explaining the Committee’s (FOMC) reasoning for increasing the Fed Funds target rate by 1⁄4 percentage point to 3 3⁄4 – 4 percent, Warsh said:

“Credit flows have been robust, particularly for businesses. And as I said at the policy symposium in Jackson Hole, I would be hard-pressed to describe broad financial conditions as restrictive. This view was widely shared by the Committee. So we removed a dose of accommodation.”  

The decision to raise rates was expected; however, the 12-0 unanimous vote was not. Chair Warsh seemed to add a degree of certainty as to what we might expect in the future…

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Today, the FOMC decided that this standard has not been satisfied. The committee’s unanimous vote shows our resolve to achieve price stability on a timelier basis. We aim to ensure that credit and financial conditions are consistent over time with our mandate, that relative price changes in some sectors of the economy do not broaden, that inflation compensation in market prices stays low, and that inflation expectations remain well-anchored. 

Below are my responses to Fed Chair Warsh’s statements.

FED’S 2% INFLATION TARGET 

A formal, precise inflation target rate of 2% was adopted at the FOMC meeting on January 24, 2012. In my article The Fed’s 2% Inflation Target Is Pointless, I said…

“…if an inflation target is justified, why 2%?  Why not a lower number? Or any other number? In truth, it probably doesn’t make any difference. From the Fed’s perspective, it gives them a license to openly discharge their firearms in the public square. If they miss, they can just reload and fire again. Should they happen to hit the target, they can either maintain their current posture or tweak it accordingly so as not to overshoot in the future.

But they will never “hit” their target.  Especially this one.  Why not? Because it is a moving target, comprised of moving parts. And it is the result of the Fed’s own previous actions.”

There is only one cause of inflation: government.  The term government also includes central banks, especially the US Federal Reserve Bank. What most people refer to as ‘inflation’ or its causes is neither. They are the effects of inflation.   The “increase in the general level of prices for goods and services” is the result of the inflation that was previously created.

Inflation has always “been too high and… for too long.” Absolutely true. Since its inception in 1913, the Federal Reserve has inflated away more than 99% of the U.S. dollar’s purchasing power via fractional reserve/no reserve banking.

WE REMOVED A DOSE OF ACCOMMODATION

Both Treasury Secretary Bessent and Fed Chair Warsh have specifically stated their commitment to “ample reserves and liquidity” in the financial system.

While acknowledging that broad financial conditions are not restrictive, yet admitting the need for “removing a dose of accommodation “, the action is like spiking the punch and raising the cost after the fact, while encouraging all to continue imbibing.

CONCLUSION 

Price stability is an elusive goal. The Fed will remain forever reactive to the effects of its own errant policies and the unpredictable, volatile effects of inflation it has created for more than a century.

Paraphrasing Warsh’s earlier reference to inflation (too high for too long), the Federal Reserve’s reaction to circumstances beyond its control is historically too much, too late; or too little, too soon. (also see Bessent On Bonds; Warsh On Inflation)

 

Musical ‘Fed’ Chairs – Same Old S—*

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MUSICAL ‘FED’ CHAIRS

Eight years ago: “President Trump nominated Jerome H. Powell as the new Chairman of the Federal Reserve Bank. Don’t look for much to change.” (see New Fed Chairman – Same Old Story)

Two weeks ago: “I am pleased to announce that I am nominating Kevin Warsh to be the CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM. Congratulations Kevin! PRESIDENT DONALD J. TRUMP (Truth Social)

Before Powell was Janet Yellen…

“…if Ms. Yellen makes it through the current year unscathed, she won’t be hanging around afterwards. She won’t want to extend her risk of being at the helm when the ship sinks. And don’t trouble yourself worrying about who the next Fed chief will be.  It doesn’t matter.”  

WHY DOESN’T IT MATTER? 

Expectations that a “new” Fed chair will make a difference are shortsighted. The Federal Reserve has its own agenda.

The Fed is a private institution; a bankers bank. Banks exist for the purpose of creating money, lending it out, and collecting interest – in perpetuity. Also, the inception of the Fed was authorized by Congress AFTER a promise was made to insure that the U.S. government never ran out of money.

Deficits are funded by the Fed via monetization and placement of Treasury securities with primary dealers (banks). Any treasuries not sold to investors remain on the books of the banks, including the Federal Reserve.

NOTE: The largest single holder of U.S. Treasury debt is the Federal Reserve Bank, at about $6 trillion. This is 16% of the total debt ($38 trillion) and five times the amount of U.S. debt held by Japan.

Japan holds nearly twice as much ($1.2 trillion) U.S. debt as China ($680 billion) which is third on the list behind the United Kingdom ($889 billion).

THE FEDERAL RESERVE CONTROLS THE PURSE STRINGS 

Government spending is dependent on the creation of money by the Federal Reserve. Without the Federal Reserve, government spending would come to a screeching halt due to a lack of funds.

Nominees must be vetted (unofficially, of course) by the Fed before approval by Congress. If you think that is hogwash, then ask Judy Shelton. (see The Federal Reserve vs. Judy Shelton And Gold)

ANYONE who is nominated and approved, and sits on the Federal Reserve board in any capacity MUST/WILL fit right in.

CONCLUSION 

The Federal Reserve System operates independently, and in the interest of the banks and those who own the banks. It has never been about “doing the right thing” or “serving the public” or “correct policy”.

The Fed and its member banks have created the inflation that has destroyed more than 99% of the purchasing power of the U.S. dollar. The effects of that inflation have left the entire world awash in debt and hooked on cheap credit. The U.S. government approves of this because it is a primary beneficiary of the largesse.

Where we are today is the culmination of decades of irresponsible financial/fiscal policies and a complete abdication of fundamental economics.

The Fed now spends most of its time and effort trying to contain the damage stemming from a century of inflation which it created, interest rate manipulation, and market intervention.

Greenspan, Bernanke, Yellen, Powell, (or Warsh) make no difference. It is the same old story, same old song, same old s___. (also see Federal Reserve – Conspiracy Or Not?)