Jerome Powell, the Delphic Oracle of monetary policy, has spoken and lower interest rates have been all but promised, prompting buying sprees in financial assets including stocks, bonds and precious metals.
Powell, Chairman of the Federal Reserve, which sets monetary policy in America, is confident inflation is under control and now the emphasis should turn to protecting employment. Understand that Powell, like Punxsutawney Phil, has a checkered history on predictions.
Recall that it was Powell and his fellow monetary gurus who said inflation was “transitory” ahead of it spiking to highs of recent decades, prompting the ongoing attempt – as yet unfulfilled – to halt that “transitory” inflation.
Powell even poked fun at himself for that whole transitory mess during his Friday remarks at the elitist gathering of money policy makers in Jackson Hole.
Bottom line, the supposedly apolitical Federal Reserve that Powell heads, has made it clear it intends to cut interest rates just ahead of the election, attempting to goose the economy and head off a recession or worse. If that helps Chameleon Harris, well, we are, after all, leftist bureaucratic drones.
Thanks for being apolitical, Powell.
Left to be decided, in the minds of the talking heads on cable business shows, is whether the rate cutting begins with 25 basis points (one-quarter of a percent) or 50 basis points (one-half a percent).
Powell will read goat entrails between now and the September Fed meeting to set the final number to cut, those goat entrails being the ridiculous government reports on things such as inflation and jobs.
Recall that just yesterday those government experts downgraded their job creation number for the year ending in March by 800,000-plus jobs. It was a reduction of nearly 30 percent, not exactly confidence inspiring.
I will confess upfront I am not an economist. Despite that, anyone who’s taken basic economic courses (I have) understand that artificially increasing demand by keeping borrowing costs of money low with zero interest rates, or by injecting huge amounts of money into the system via government giveaways, and not commensurately increasing supply, brings inflation.
Plus, despite the promises you might hear from both sides of the political aisle, prosperity cannot be legislated.
Give everyone $1 million tomorrow and no one is better off, and could be worse off in the long run. That money falling from the sky will increase demand and prices. When the gift money has been spent, incomes return to normal but those inflated prices linger. Think of COVID stimulus handouts.
Similarly, with all the rush to increase the minimum wage to help people live a better lifestyle, it is fool’s gold.
Why not increase the minimum wage to $50 an hour and everyone becomes middle class?
The answer is jobs will disappear at the higher wages because as the minimum wage goes up more and more jobs make less and less economic sense. Best case scenario, working hours will be cut. Worst case, entire businesses fall into bankruptcy and disappear from the job-providing picture.
As it is, most jobs are being created by the government, and/or being filled by illegal immigrants.
But enjoy today’s sugar high of Powell indicating interest rate cuts are in the cards. Just realize the sugar high will pass and unpleasant reality is to follow.
Sam Ross Jr's site 