Joseph, I really appreciate your thoughts on this, but I wonder about the Fed's credibility issues. As I recall, when Volcker led the Fed on its spree back in the early 80's, there was no commentary, no forward guidance, no communication at all. The Fed simply adjusted the money supply to achieve the results they were seeking and were quite successful doing so. The lack of communication, I believe was critical because market participants had varying opinions as to what may happen and were positioned according to their own views, not the Fed's commands. Hence, positions were generally smaller and less leveraged so shocks were less disruptive. Ever since forward guidance became a policy tool, everybody has known which way to be, which was generally long assets, and were willing to lever up those assets b based on ZIRP and the conviction that the Fed had their back. It seems to me the current problems for Powell are entirely of the Fed's own making as they have hamstrung themselves from moving as they would like to in order to prevent an absolute collapse. And given what we are seeing in the housing market to start, it appears they have only a limited chance to be even partially successful.
More than a decade of too easy money cannot be corrected in one or two years, at least not without breaking a lot of things, at least in my view.
Nice post 👍
Joseph, I really appreciate your thoughts on this, but I wonder about the Fed's credibility issues. As I recall, when Volcker led the Fed on its spree back in the early 80's, there was no commentary, no forward guidance, no communication at all. The Fed simply adjusted the money supply to achieve the results they were seeking and were quite successful doing so. The lack of communication, I believe was critical because market participants had varying opinions as to what may happen and were positioned according to their own views, not the Fed's commands. Hence, positions were generally smaller and less leveraged so shocks were less disruptive. Ever since forward guidance became a policy tool, everybody has known which way to be, which was generally long assets, and were willing to lever up those assets b based on ZIRP and the conviction that the Fed had their back. It seems to me the current problems for Powell are entirely of the Fed's own making as they have hamstrung themselves from moving as they would like to in order to prevent an absolute collapse. And given what we are seeing in the housing market to start, it appears they have only a limited chance to be even partially successful.
More than a decade of too easy money cannot be corrected in one or two years, at least not without breaking a lot of things, at least in my view.