In case you wonder if the Fed knows what they are doing, I suggest you take a look at their forecasting record from 2007–2015. Each year, the Fed projects economic growth on a one-year forward basis. From the 2008 crisis until seven years later, those forecasts were wrong by orders of magnitude.
They were not off by a little (that’s OK). Sometimes they even got the direction wrong. For example, forecasting growth in 2008 when we actually experienced the worst recession since the Great Depression.
The Fed kept rates too low for too long from 2001–05 (which led to the housing fiasco) and kept them too low for too long again from 2008–2015 when they should have started to normalize no later than 2010. The list goes on.
Unfortunately, Fed incompetence seems to be cumulative. The Fed cut interest rates for the second time recently on Sept 18. As shown in this article, Fed Chair Jay Powell insists that this second rate cut is not part of a “sequence” based on current data. This means he might stand pat or possibly even raise rates at a future meeting, depending on growth and inflation data.
Powell is out of touch. The Fed raised rates too far and too fast in 2018 and nearly caused a recession. The two recent rate cuts are an effort to undo that damage.
Growth in 2019 has slumped from 3.1% in the first quarter to 2.0% in the second quarter to 1.9% (estimated) for the third quarter. That slowdown is the lagged effect from rate hikes (and balance sheet reductions) in 2017 and 2018.
If the Fed hikes rates now (or even pauses) they will more or less guarantee the recession they just barely missed. You should expect the Fed to cut rates more and gradually work their way back to zero over the coming year. This is what the economy is telling us even if Jay Powell is the last to know.
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