What was the most important moment in Jerome Powell’s post-Fed meeting comments this week? When a reporter asked about the Fed staff removing recession from their forecast, Powell responded, “It is hard to see a recession when one looks at the data.”
Which will you believe, your sense of reason or your sense of sight? Today we continue to hear that higher interest rates are going to slow down our economy. It makes sense: higher rates make home mortgages and car loans more expensive. Rates on credit cards will be higher, so it must have an impact, right? Logic may say yes, but observation says no.
Wall Street is also a broken record today. The Fed met this week and held rates steady, but indicated that they will keep them where they are for longer than they previously thought. The market reacted negatively, and the pundits are once again yelling, “Recession is coming, recession is coming!” But is it?
The bears are back and they sound like a broken record. “We are heading to a recession.” “Inflation is back, just look at oil prices.” The Fed is likely done raising rates, “…but they are going to keep these rates too high for too long.” Finally, they remind us that Fed policy has “long and variable” lags. We know now that these experts have been dead wrong for a year and a half, but are they right now? Let’s take these points one at a time…
Last week, bond-rating agency Fitch Ratings downgraded the rating of the United States to AA+. One has to wonder about the timing of the downgrade. Why now? Where was the downgrade of banks before Silicon Valley failed? The problem with rating agencies is and always has been that they view the world through the rear-view mirror.
