The media made a big deal out of President Donald Trump’s dislike for Federal Reserve chairman Jerome Powell’s preferred policies, highlighting Trump’s concerns regarding higher interest rates. But now that Powell is caving in to stock markets by taking back his promise to reduce the Fed’s balance sheet, it’s almost as if nothing had happened. Politics, the media seems to think, doesn’t touch the Fed, and the agency does what it does to keep our economy strong in spite of who’s in power.
Unfortunately, this notion couldn’t be further from the truth.
Under President Barack Obama, the Fed expanded the balance sheet to incredibly high levels to try to ease the conditions presented by the crash. But as it continues to expand under Trump, it’s blown up to over $4 trillion. But while Powell’s Fed had admitted things needed to change, planning to reduce the balance sheet systematically over time and estimating a decrease of up to $600 billion per year, things changed.
In a muddy statement, the Fed explained that it’s ready to do anything to keep economic prospects rosy, including foregoing its initial plan to reduce the balance sheet.
“The Committee is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments,” the Fed stated, proving it’s ready to bow to both Wall Street and the president to prevent any immediate economic downturns.
“Moreover, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.”
As Paul-Martin Foss explains, that means Powell hasn’t changed a thing and the president has nothing to worry — for now. After all, the unhinged monetary policy implemented after the 2008 financial crisis is still in place, and the very structure of our economy’s capital remains distorted.
Instead of remedying the damage by rolling back policies that facilitated the crash, the Fed will continue to do what it does best: increase the money supply through its balance sheet and fool around with price controls by keeping interest rates artificially low.
As Mises Institute’s president Jeff Deist wrote for the Washington Times, nothing will tame the Fed — not even the laws of economics. And while the institution will continue to act as if creating money out of thin air is how you keep the economy strong, its policies will do nothing to stop the next major crash from coming down hard.
When it happens, expect to see the media, once again, playing dumb.