It’s difficult to think of anything the Fed has done right in the past 105 years.
Monetary policy was too easy in 1927 as the stock market bubble was building. It was too tight in 1929 when the bubble finally burst. It was too tight again in 1937 as the U.S. economy was struggling to emerge from the Great Depression.
The Fed was too easy from 2003–06 as the mortgage bubble was inflating and then waited too long after 2009 to normalize policy. This has resulted in another stock bubble we’ll now have to deal with. And so it goes.
Now the Fed is tightening too fast by using a combination of rate hikes and money burning (so-called “quantitative tightening”) at a time when the economy is vulnerable to a recession after nine years of growth. This article shows that even Goldman Sachs, a customary Fed cheerleader, is beginning to have concerns about slowing growth.
If Goldman is sounding the alarm, it may already be too late to avoid a recession in 2019. Still, it’s good to know so you can take precautions including reducing equity exposure, buying bonds and bond substitutes such as utilities and increasing allocations to cash and gold. Better late than never.
Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.