We're going to open this note with a slight adaptation to the musical stylings of Salt-N-Pepa:
Let's talk about symmetry
Let's talk about you and me
Let's talk about all the made up
Things the Fed has caused to be
We are, of course, referring to the Fed's recent "policy decision" from Jackson Hole. (According to Strunk and White's classic Elements of Style (updated and annotated by Robertson), when referring to the Fed, "policy decision" should always be in quotes, to denote its made-up nature).
The "policy decision" essentially codified a symmetrical inflation goal. To translate with some background for anyone not fluent in Fed-speak:
One of the explicit reasons for being of the Fed is to "maintain price stability" (direct quote quotes, not made-up quotes this time). They used to take that literally and target actual price stability. Then in 2012, there was a new "policy decision" (back to make-believe) that said price stability meant 2% increases in price every year. That doesn't sound particularly stable to us, but the Fed hath spoken and so shall it be.
Since the '08 Financial Crisis, the Fed has pretty consistently failed at hitting that 2% inflation target, so their new "policy decision" says in effect price stability doesn't mean getting to 2% inflation, it means averaging 2% inflation. Fed policies for the last decade plus have attempted to raise inflation to 2% and failed. But if those policies finally start working, it will be considered well and good for inflation to run hot (over 2%) to "make up for" all these years it has been under 2%.
So "stability" might mean prices increasing at 4% per year. Because the price of milk five years ago should influence how much you can pay for it today. Right.
The other verbage change of note was that "deviations" became "shortfalls" when referring to employment. This gets a bit pedantic, but the translation here is roughly along the lines of: our canonical model on which we base "policy decisions" (the Phillips Curve) was wrong and so we will scrap it and continue to make things up as we go.
Here's the problem: this decision is just the Fed changing the color of lipstick they're putting on their pig. Actually no, we take that back. Pig lipstick would imply an irrelevance to the problems at hand, and that's not accurate. This is the Fed throwing water on a grease fire.
As a result of the '08 Financial Crisis, the Fed embarked on a journey of "extraordinary" (both a direct quote quote and a make-believe-signifying quote) monetary policies to get the economy cooking again. Unfortunately, their "policy decisions" did nothing to stimulate economic growth and instead only seem to have stimulated the growth of income inequality.
For some reason they either can't or won't see this, and so have defaulted to a position of MOAR! until it "works". Which it doesn't and won't, for the very simple reason that the Fed is wrong. Wrong about inflation because they can't measure it properly, and wrong about the Phillips Curve because they can't measure unemployment properly either.
(If you'd like to see us do a chartpack-style newsletter in support of that previous paragraph, let us know! Also consult previous newsletters here and here. For this month, however, we'll assume you're not particularly interested in the details and will take our word for it).
Hopefully the Fed sees the fire but can't see that it is actually making it bigger by trying to put it out. We say hopefully because we could also fairly readily believe that the Fed doesn't even see the grease fire and instead thinks the heat is coming from a sauna and is intentionally adding water to the rocks.
We'd like to address another aspect of symmetry before we sign off this month, but it's going to require a little philosophical zoom out.
There's quite a bit of social unrest in this country at the moment. People from both sides of the aisle are hot and bothered about...everything. The election, the Supreme Court, the viability of the other party's candidate as a functional human being, BLM protests, COVID epidemiology, schools reopening…
One has to wade through a heap of dogmatic drivel from all sides, but the overarching sense we get is that of generalized anger and frustration. Frustration with an out-of-touch, inept system that is full of glaringly obvious failures. Anger that those failures have real-life, harmful consequences for real-life people. And then a redoubling of frustration and anger when those in charge of such systems pay lip service to the ideals behind addressing those failures and then continue on their merry way. Is it willful blindness? Is it ignorance? Greed? A power trip? The fact that the leaders of our country are all roughly as old as the average life expectancy in the US, if not older? (Seriously though...US life expectancy is 78.9 years; Trump is 74, Biden is 77, McConnell is 78, Pelosi is 80). Regardless, there is a real sense of futility when faced with a failing system that you don't have the power to change yourself that makes one want to scream or cry or burn something down.
What are we talking about? We're talking about finding out yet another officer responsible for shooting someone has a long history of excessive use of force complaints.
We're talking about House leadership donning Kente cloth. We're talking about the continued shortage of PPE and testing six months since a national emergency was declared while our leaders politicize lockdowns or reopenings. We're talking about seeing $3T of taxpayer money get handed to banks/hedge funds/corporations in the span of two months while simultaneously watching Congress keep failing to support those very same taxpayers because of political games. We're talking about the fact that you don't vote for President in November but rather you vote for the party you wish to choose a slate of donors-turned-electors who may or may not vote for the party's candidate.
It's obvious and in your face when these things are socio-political. It's largely hidden away in the inner sanctums of the Marriner Eccles building when these things are economic but they're basically symmetrical. A mindless continuation of failing "policy decisions" that end up exacerbating the underlying problems.
So what is one to do about it? Unfortunately, there are no easy answers. We would suggest education is a big part of the solution. If you're stuck in a system that doesn't care about you, it's important to know how that system works; to know when and how you may be able to function outside of the system and to know how to take advantage of it to get what you want when you're stuck inside it.
That's one of the reasons we spend so much time ranting about the Fed. Hopefully you, dear reader, get an amusing kick out of our angst but also learn a little something in the process. We may be a little biased given the nature of our work and a little jaded given the nature of our...nature, but we would contend that whoever becomes President has very minimal impact on most people's day-to-day life. Far more impactful, we believe, are the decisions of the Fed and the price of money. Can you afford to buy a house? Get a loan? Have your savings keep up with inflation through retirement? Fed, Fed, and Fed.
So, red pill it is, then. And while closing with Salt-N-Peppa would be a nice bit of meta symmetry in this note, we'll instead borrow from the Bufo alvarius episode of Hamilton's Pharmacopeia and suggest that apart from education, it would probably also serve to have a little more love for those around us similarly stuck in an uncaring system. Even if we don't always agree.
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