The Fed’s Big Day!

05 May

The Fed’s Big Day!

No Resolve to End Inflation!  

The Fed labored mightily, and brought forth…

A mouse!

We’ve adapted the line from one of Aesop’s fables that describe any great effort that delivers very little.

So the Federal Reserve has promised and teased and vowed and threatened for months now that it would get a handle on credit conditions and interest rates at its May meeting.

On Wednesday, the Fed concluded its gathering with this announcement:

The Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1.

So in the face of double-digit inflation, the Fed raised its key rate to around one percent.  It was described as the most significant one-day Fed tightening action in decades.  What is clear is that hving inflated its balance sheet to $9 trillion dollars with its recent money-printing binge, the Fed simply lost its nerve on unwinding this excess.  Along with its 50 basis point increase in the Fed funds rate – which continues to leave the rate deeply negative – the Fed’s apologist widely telegraphed a balance sheet run-off $90 billion a month beginning now, in May.  Instead, it announced a $47.5 billion decrease in June, followed by several months of the same reduced pace.

Some analysts conclude that the Fed has already lost its tightening resolve.  Michael Shedlock says the Fed’s announcement amounts to “baby steps.”   Shedlock says the Fed’s announcement “strongly suggest the Fed will abandon QT as soon as a deep recession or credit market event hits.” observes that the Fed is pushing rates up “too little, too late” after 13 years of rampant money-printing.

The market shrugged off the move, too.  The major stock indices leave and breathe cheap Fed rates, so they all moved higher, the Dow up 900 points.  

Gold and silver both inched higher, too on the Fed’s lack of seriousness.