Man In Charge of Inflicting Pain on U.S. Economy Indicates He Might Finally Be Satisfied

December 15th, 2023

Awake Goy

The chairman of the Federal Reserve announced Wednesday that he was satisfied by what he had seen. At the latest Federal Open Market Committee meeting, Jerome Powell effectively said that he believes the worst of the country’s inflation crisis is likely over, meaning that he was ready to end the era of simultaneous rising prices and interest rates, which has made buying everything from food to homes more expensive while also encouraging mass layoffs.

Prices aren’t likely to return to pre-pandemic levels ever again, at least across the board. But Wall Street doesn’t care much about that, and it pulled out the champagne and started celebrating like it was the 1980s. The Dow Jones Industrial Average hit a record high, and so many other numbers went up that Bloomberg described it as the “the best Fed day across assets in almost 15 years.” Treasuries, currencies, bonds, you name it, it probably went up.

The vibe on CNBC is being described as “giddy.” “We’re having a party,” Charles Schwab’s chief fixed-income strategist told Bloomberg. “JEROME’S IN THE HOUSE,” one giddy member of the Wall Street Bets community posted alongside a meme of the Fed chair printing cash.

Since March of last year, Powell and the rest of his Fed team have been aggressively hiking up rates in an attempt to cool off rapidly rising prices, which at one point were climbing at a rate of 9 percent year over year, causing people all over the world to feel poorer as the cost of living skyrocketed compared to lagging wages.

Powell faced accusations that he was risking throwing working people into unemployment in a crass effort to tamp down prices, and he did cool off the labor market as companies executed mass layoffs while citing economic headwinds—economists’ way of saying take away workers’ leverage to obtain raises and better working conditions. By raising rates so quickly and so aggressively, Powell also iced the housing market, making the price of a home so expensive as to be out of reach for many potential first-time homebuyers.

On Wednesday, in the typically boring Federal Reserve-ese required of him, Powell said that he was done inflicting pain, or that he had inflicted enough pain as to be satisfied. For the third straight meeting, he said he had decided to keep interest rates unchanged from where they’ve been since July. But the more significant and delightful news for stock-lovers was the revelation that his team expected to cut rates three times next year, ending an aggressive upward climb in interest rates that seemed endless only a few short months ago.

Interest rates are now parked in the 5.25-5.50 percent change, the highest level in 22 years, and Fed policy makers now expect that to dip to 4.6 by the end of 2024. Notably, according to The New York Times, no Fed officials expected interest rates to be higher than they are now this time next year, the broad sort of consensus and “certainty” that Wall Street salivates over.

This led to the party we have seen since. Bloomberg described Wednesday’s announcement as proof “the great monetary pivot is near, and financial professionals were soon calling it “a massive paradigm shift on Wall Street. “ Wall Street is filled with rich people and optimists—so much so that people who make a living betting against stocks are considered villains—so it has a tendency to search for reasons to celebrate.

But there is reason to believe that this is a rare moment for everyone to very cautiously feel slightly optimistic. Powell himself has indicated the country has reached an inflection point in which the Fed shifted to worrying more about recession than rising prices—the two mandated focuses of the Fed—or at least care about each equally. “You’re getting now back to the point where both mandates are important,” Powell said Wednesday.

The latest data shows consumer prices are now only rising at a rate of just over 3 percent. The Fed hopes to ultimately get that number down to 2 percent, but doesn’t realistically expect that to happen until 2026. Powell has been trying to walk the careful line between curbing inflation without sending the economy into a tailspin—the so-called “soft landing”—and he indicated Wednesday that he wasn’t willing to wait until inflation hit the magical 2 percent number to pump the brakes on the interest rate increases. Doing so, he said, would unnecessarily risk recession. “The reason you wouldn’t wait to get to 2% to cut rates is that policy would be too late,” Powell reportedly said.

The reason for optimism despite inflation still sitting a little too uncomfortably high is that Fed officials believe the effects of higher interest rates are still making their way through the economy and will continue to leave their mark over the next few years by making it harder to buy a house, for example, or get some cash for your weird startup idea.

“It takes a while for policy to get into the economy, affect economic activity and affect inflation,” he reportedly said at a press conference afterward.

Never say never, and Powell continues to keep open the possibility things will go haywire and he’ll have to hike rates up again. But as of now, the doomsayers have egg on their face, or at least a little bit of yolk, as Powell has been able to do what seemed unlikely just a year ago: reduce prices without enacting severe, widespread pain.

It is still far too hard to buy a home, and the rents are still too high. That isn’t likely to change. But at least now, it seems like the most powerful man in the global economy is starting to worry about it a little bit more.

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