Yes it definitely appears that the fed’s rescue has failed. But here is the thing I’ve been wondering for several months now:
What do the fed governors and BB really think? Given that if they say negative things, there’s a good chance real panic will happen, the question is what are they really thinking and saying to each other in private. Do they believe what they say, that things aren’t that bad, or in private do they roll their heads and mutter, “hey guys, We’re f*ckd. Interest rate cuts aren’t working and inflation is totally getting out of hand.”
I keep seeing the fed governors give speeches in which they talk about how it’s important that we don’t allow “inflation expectations to become unmoored.” (Is it just me, or do others keep seeing that phrase?) And every time I see that phrase I wonder, “What in god’s name are you talking about? Inflation expectations broke away from the dock months ago! Don’t you guys even look at the press? Have you seen all the articles talking about how inflation is clobbering people? And have you seen the price of everything from gold to oil to wheat?”
Then add to this the fact that the fed governors are now talking about how if (if??? if??? wtf is with the if?) inflation expectations get unmoored they will have to reverse their rate declines rapidly. Huh???? WTF? How in the world are they going to keep the economy from full collapse if they throw in the towel and reverse their rate declines?
So, the final question here is how does this play out? Everyone is certain the fed is going to keep cutting rates, (and god help us if they change course, cause that will really unhinge the markets) Which so far clearly means that inflation is gonna keep right on going full steam ahead. (Despite what Mish and the deflationista’s say) Are we headed for a long period of stagflation? At what point will policy change? When the dems take the white house will they throw BB out and bring in a Paul Volker? (I find that hard to believe but what do I know) How long are we going to have a slowing economy and rising inflation?
