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**OCTOBER 5, 2022**
Kuttner on TAP
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**** Stock Market Cheers Bad Economic News ...
... In hopes that maybe the deepening recession will change Fed policy.
No such luck.
The Dow rallied more than 1,500 points in two days this week, after
several weeks of steady decline. Why, because the news is so bad that
Wall Street insiders consider it good. Namely, the world economy is
headed for recession so rapidly that the Federal Reserve-whose
policies are causing the recession-just might relent a little sooner
than expected.
Well, don't bet the farm on that. As of this writing, the stock market
is dropping again.
What's pathetic is not just the Fed's perverse policies, but the
groupthink. The Fed is infamous for peer pressure to conform. The chair
totally controls the staff, and other governors do not have their own
staffers. New members tend to be acculturated from the time they take
their seats.
President Biden's crop of Fed appointees, sadly, are no exception. The
Fed's three rate hikes were approved without dissent. Lael Brainard,
elevated to vice chair, did occasionally dissent on regulatory issues in
her earlier incarnation as the only Democrat on an all-Republican Fed.
But in her new role, Brainard seems to be intent on proving that she is
more Catholic than the pope, with one ultra-hawkish speech
on inflation and interest rates after another. "Monetary policy will
need to be restrictive for some time to have confidence that inflation
is moving back to target," she said in a September 30 speech. "For these
reasons, we are committed to avoiding pulling back prematurely."
No dissent has been heard from Biden's other appointees, Lisa Cook,
Philip Jefferson, or Michael Barr.
The global economy is now in a self-deepening cycle where other central
banks raise rates defensively. The more expensive dollar is especially
damaging to nations of the Global South. This comes on top of more
costly energy and food, which has nothing whatever to do with excessive
demand-the usual justification for rate hikes.
The press has been filled with scathing ridicule of British Prime
Minister Liz Truss, who managed to sink the pound with a half-backed
scheme of supply-side tax cuts. Truss was forced to reverse course.
Some of that ridicule should be directed at the Fed, which is
demonstrating that it has far more capacity to damage the world economy
than the pitiful British prime minister.
~ ROBERT KUTTNER
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