Anyone who lived through the 1970s remembers the crushing effects of stagflation. The phenomenon, characterized by severe recession, double digit inflation, and high unemployment baffled Keynesian economists who had long posited that high inflation and high unemployment couldn’t exist together. The Phillips Curve propounded by the Keynesians held that there was a direct relationship between inflation and unemployment, with...
One indicator that market analysts look to for signs of an impending recession is an inverted yield curve. Because of uncertainty about the future, investors demand more yield from longer-term investments. That’s why you’ll see higher interest rates on longer-term bonds than shorter-term bonds. An one-month bond may yield 3% interest while a 10-year bond may yield 5%. When...
Stock markets soared last week in the aftermath of Fed Chairman Jay Powell’s speech to the Economic Club of New York. In contrast to Powell’s statement in October that the Fed was still a “long way” from the neutral interest rate, Powell last week stated that interest rates now “remain just below the broad range of estimates of the...
One of the more disappointing aspects of President Trump’s tenure is the evolution of his criticism of the Federal Reserve System. While candidate Trump rightfully criticized the Fed for artificially depressing interest rates, President Trump has morphed into attacking the Fed for raising its target federal funds rate. While he correctly identified the Fed’s political motivations for keeping interest...
One of the hallmarks of the Federal Reserve System in the modern era is the near unanimity with which it normally makes decisions. With the direction of policy being guided by the Fed’s chairman, the Federal Open Market Committee (FOMC) has rarely had members dissent from its decisions. When dissent does occur, especially when a number of members dissent,...
Read financial media today and you’ll find instance after instance of business executives and financial industry professionals worried about the Federal Reserve’s tightening of monetary policy. Mind you, this comes at a time when the target federal funds rate remains a hair over two percent, which is historically still very low. The Fed’s balance sheet, too, remains incredibly large,...
Gold has been almost universally derided by governments in recent decades. Finally freed from the strictures of the gold standard, central banks and governments around the world have done their best to propagandize their people that gold is nothing more than a “barbarous relic.” For a while it seemed to be working, with gold prices trading in a narrow...
Stock markets have been topsy-turvy in recent weeks, with investors continuing to remain nervous about the direction of markets as interest rates continue to rise. President Trump has blamed the Federal Reserve and its raising of the target federal funds rate for weakening the economy and unnerving markets. But if merely raising rates has caused this much unease in...
Despite the wishes of many investors, stock markets will not continue to march onward to new highs. The massive growth of stock market indexes over the past few years had its roots in the Federal Reserve’s easy monetary policy that grew to enormous heights in the aftermath of the financial crisis. Cheap, readily available money inflated yet another stock...
President Trump last week placed the blame for crashing stock markets on the Federal Reserve and its decision to continue raising interest rates. The President thinks that’s crazy and wants the Fed to keep interest rates low to keep the economy humming along. And while Trump stated that he doesn’t want to fire Fed Chairman Jerome Powell, the public...