Home[1] | Wire[2] | The Fed Panicked, and Its Rate Cut Is Making the Economy Worse
The Federal Reserve's monumental mistake of cutting rates this past week can only be understood in the context of the rising God complex among central planners: an overwhelming combination of ignorance and arrogance.
Less than a week ago, several members of the Federal Reserve board reiterated—rightly so—that cutting rates would not have a significant impact in a supply shock like the current one. We must also remember that the Federal Reserve already cut rates in 2019 and inflated its balance sheet by 14 percent to almost all-time highs in recent months, completely reversing the virtually nonexistent prior normalization. Only a few days after making calls for prudence, the Fed launched an unnecessary and panic-inducing emergency rate cut and caused the opposite effect of what they desired. Instead of calming markets, the Federal Reserve's 50–basis point cut sent a message of panic to market participants.
If the jobs and manufacturing figures are better than expected, and the economy is solid, with low unemployment, what message does the Fed's emergency cut transmit? It tells market participants that the situation is much worse than it seems and that the Fed knows more than the rest of us about how dire everything can be. It is a communication and policy mistake driven by an incorrect diagnosis: the idea that the market crash would be solved with easy monetary policy instead of understanding the impact on stocks and growth of an evident supply shock due to the coronavirus epidemic.
There is no lack of monetary stimulus in the economy. Global money supply has soared to $81 trillion, an all-time high, in the middle of the epidemic, most leading economies have cut rates and...