In case you missed it, Mr. Market is helpless with the Fed and is afraid of starting a war on inflation. The Financial Times gave a representative:

European stock markets fell on Thursday as the pace of selling started with high-value technology stocks accelerated after the U.S. central bank hinted that it would quickly end its monetary stimulus measures during the pandemic…

The minutes of the latest meeting of the Fed show that since March 2020, Fed officials who have boosted financial markets through large-scale bond purchase programs and record low interest rates generally believe that it is time to accelerate the exit. This support.

To be fair, as we said earlier, the Fed has quietly realized that its ultra-low interest rate experiment was a mistake. I remember that when the Fed cut interest rates below 1% before the crisis broke out, this would prove to be a mistake. However, the central bank subsequently fell into the “75 is the new 25” model, by cutting interest rates sharply to show that it is serious about saving the market. When interest rates are very low, the impact of interest rate cuts and interest rate hikes is magnified.

Even ordinary market observers know that the Fed has been hoping to exit its ultra-low interest rate corner since the panic cut in 2014, but the central bank has also been worried that it will scare the market. Now, with investors’ fierce attacks on inflation, the job market is nominally tight (although a strong economy usually pulls marginal labor due to worker withdrawal), even by the standards of the past ten years, the market is overheated, and the Fed considers itself Facing the pressure to act, step on the brakes.

I should really say more, but the spectacle of the Fed’s involvement in mission creep and becoming a self-designated economic regulator is now drawing logical and regrettable conclusions. In a system where economists have long been the only social scientists on the policy negotiating table, these experts have done poorly at the level of growth in policy formulation. Of course, given global warming and the need to better integrate resources, many people now question the legitimacy of targeting growth, but we will put it aside.

For politicians, it is very convenient to delegate the responsibility of economic management to a typical oracle Fed, rather than simple things like emphasizing economic stabilizers, as in countercyclical planning, when the economy is not In booms and recessions, payments (economic stimulus!) rise when activity rebounds. But the small problem is that the most effective plan will target citizens with high marginal propensity to consume, such as low-income earners, and in the United States, we hate the poor. Congress is also hiding under the skirts of neoliberal propagandists masquerading as impartial CBOs; we wrote some harsh posts about how the agency not only often counts on balances when conducting analysis, but also puts a lot of effort into providing conservative conversations Point.

The last question is that the Fed is still living under the light that Volcker’s promotion of interest rates is breaking the myth that entrenched stagflation in the 1970s. In fact, Warren Mosler’s analysis shows that substantial inflation is not only caused by the increase in oil prices outside the influence of the central bank, but more importantly, oil prices finally fell in 1979, and inflation has already begun. It is also fading. Therefore, if the Fed remains calm, inflation will disappear from the system, albeit at a slower rate.

As we wrote in the comments of a recent article:

The problem is that “inflation” has been severe in important categories: energy, food, and automobiles.

The increase in energy costs has nothing to do with the Fed. Demand has been hit by Covid, manufacturers have not responded fast enough, and retailers have committed fraud to a certain extent.

Food is largely due to poor weather-related harvests and Covid’s impact on the supply chain.

The car was caused by a shortage of chips and Covid washing.

These are completely outside the Fed’s purview, and although they are important for inflation measures (the increase in fuel costs is propagated through all other costs), they are related to the monetary story about inflation.

Most importantly, the macroeconomic forecast is similar to the CDC’s forecast for Covid. Coupled with Covid, if Omicron doesn’t back down quickly, economic chaos will become widespread again and will inhibit growth. Unlike 2020, if demand unexpectedly drops, no one is willing to invest large amounts of money or control measures (such as deportation freezes) to support demand.