Following the recent FOMC meeting, the FED announced a rate hike of 0.5%.
This will raise the Federal Funds Rate to a target range between 0.75% and 1%.
This was expected and already priced in by the markets.
In a press conference, Jerome Powell, the FED chairman said “Inflation is much too high. We’re moving expeditiously to bring it back down.”
I saw a headline in CNBC which read “FED raises rates by half a percentage point - the biggest hike in two decades – to fight inflation.”
There are several things I wish to say about all this.
Firstly, Powell’s statement and the headline made me emit a contemptuous chuckle. The FED has no intention whatsoever of tackling inflation. If it were serious about tackling inflation, then it would raise interest rates to above the level of inflation and keep them there until inflation was under control. Back in the early 1980s, previous FED chairmain, Paul Volker rose raise to 20% to tackle inflation.
According to official figures inflation is running at 8.5% in the US. Let’s take that as factual, er hmmm - so interest rates should be at least 9%, if not in the double digits.
But in my considered opinion, the FED won’t raise rates to anywhere near these levels. Why not? Well because the FED is in a bit of a bind. If it raises rates to tackle inflation, then the Economy will suffer. It will cause an almighty crash and a recession, or probably something worse. More like a depression akin to the one in the 1930s.
If it doesn’t raise rates much higher than present levels, then inflation will not only continue, but will in all likelihood get a lot worse. And that will bring about the demise of the Dollar and all other fiat currencies as well.
So, basically, the FED has to chose between the Economy and the Dollar – they’re damned if they do and damned if they don’t.
Intentions
Before we go any further, I should say something about intentions.… Talking about intentions is tricky.
How can anyone know with certainty what anyone’s true intentions are? I would say that we can not.
Be that as it may, we can look at people’s actions as use this as a fair proxy, a substitute of sorts. Actions are, I think, a reasonably good indicator of intentions. In our everyday lives we oftentimes judge a person by their actions. We can consider how they operate in the world and this should give us a fairly good guide as to what their intentions might be.
By the same token, we can consider what the FED has done, how they have operated in the past however many years and this should tell us something about their intentions.
There is a caveat here … what I say about their intentions amounts to conjecture. I can not know for certain. I could, of course, be totally wrong. Their true intentions might well be entirely different to how I have portrayed them.
Anyway, that said, I don’t think that the FED has any intention of tackling inflation.
But, I would go further than that and say that it’s their intention to create more i
