Clueless Powell

I watched Federal Reserve Chairman Jay Powell's post-FOMC presser yesterday. He completely dodged a question about the disconnect between stocks and the real economy. He was asked a second time by a Bloomberg reporter. It was a two-part question, one about asset bubbles and the other about how Fed policy is creating inequality. He dodged the second one. For the first, he said it doesn't make sense to curtail programs designed to help the real economy because of an asset bubble. In other words, an asset bubble is an acceptable cost. In an of itself, this makes sense. You cure the disease and worry about side effects later. However, Federal Reserve policy doesn't work unless it directs capital into productive and sustainable investments. By creating asset bubbles, the Fed directs capital into speculation, into activities such as gold mining and cryptocurrencies. This heightened level of activity is only sustained by increased Fed intervention. When it stops, these activities cease and money is destroyed.

Small retail buyers piled into speculative positions over the past couple of months. Unemployed workers threw their stimulus checks into the stock market. Many have made great returns in the market, but many are still buying as the market could be turning. ZH: Market Bloodbath Unleashes Furious Robinhood-Based Dip-Buying If the market goes down, not only will Fed policies not have helped the economy, they will destroy a portion of the stimulus money that was intended for real business activities.

Powell could have said things such as "stocks are getting ahead of themselves" or "our policies are not intended to support market speculation," any number of statements could qualify as jawbonig. He could also recommend raising margin rates through regulatory policy to push capital away from speculative financial markets. He chose not to. The conspiratorial narrative says Powell's only goal is elevating stock prices. The real economy is doomed and he'll do anything to keep asset prices from falling. I subscribe to the clueless narrative: Powell and the rest of the FOMC have no idea what they are doing.