For over 10 years, beginning with my first book, Currency Wars, I’ve consistently maintained that the Federal Reserve has no idea what they are doing when it comes to monetary policy and economic forecasting. I don’t consider that a controversial position; the evidence is overwhelming in the form of highly erroneous forecasts, policy reversals (from QE to QT and probably back again) and rate reversals (from cuts to increases and back to cuts), all without any significant changes in macroeconomic performance.

The U.S. economy has been stuck in a persistent rut of annual growth around 2.2% for over 10 years regardless of whether the Fed is printing or burning money, raising or cutting rates. Long-term trend growth has been around 3.2%, so underperformance the past 10 years has cost the economy over $5 trillion in lost output. Thank you, Fed.

Now comes the latest evidence for my thesis. In this article, New York Fed President John Williams says, “Low inflation is indeed the problem of this era.” He’s right, but he’s about 10 years too late with the observation.

In Currency Wars(2011) I wrote, “The Fed is attempting to inflate asset prices, commodity prices and consumer prices to offset the natural deflation that follows a crash. It is basically engaged in a game of tug of war against the deflation that normally accompanies a depression… This is the essence of the Fed’s gamble. It must cause inflation before deflation prevails; it must win the tug of war.”

The Fed spent 10 years (2009–2019) worrying about inflation that never appeared. The Fed consistently failed to achieve even the modest goal of 2% inflation. They should have been targeting 3% inflation (which would provide some debt relief in real terms) by working with fiscal authorities instead of wasting time printing money that banks wouldn’t lend and customers wouldn’t borrow.

Now the disinflation and deflation may be too deeply ingrained to reverse. The U.S. is like Japan with one “lost decade” under our belts and another one on the way. The Fed has discovered this far too late.

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