The Fed Blows it -- Again

Briton Ryle

Written By Briton Ryle

Posted April 10, 2024

Mark Twain said: “It is better for a man to remain silent and appear a fool than to open his mouth and remove all doubt.”

Fed Chair Jerome Powell should heed that advice. Every time he speaks with certainty about inflation, he gets made a fool. 

You’d think Powell might’ve learned a lesson back in March 2021 when inflation first reared its ugly head. Instead, when inflation spiked over the Fed’s two percent mandate, Powell said it was transitory. 

And he kept on saying inflation was transitory until it hit nine percent in June 2022.  Nine percent!

Inflation never should have gotten out of hand like that. It’s Jerome Powell’s fault that it did. 

The Fed may have several responsibilities. But it has one mandate: keep inflation at two percent. It’s a pretty simple playbook. And it’s too bad Powell didn’t follow it. A couple of rate hikes to take some of the Fed’s historic pandemic money pump off the table could have spared American families a lot of unneeded suffering. 

We Got Rules, See?

Now I understand that the U.S. economy was still a bit shaky in 2021. And it’s clear that supply disruptions are the main reason prices started moving higher. 

I can even see the logic of thinking the effect of the pandemic/supply chain double-whammy might be transitory. 

But that’s why there are rules. A mandate. 

It’s exactly like using a stop loss on an investment. As investors, we all know it’s not possible to know everything. If you think $10 bucks is a good price for a stock, you buy it. But you also acknowledge that you could be wrong, that if the price falls to $9 you are wrong, so you use a stop loss that automatically sells the stock at $9. 

It’s basic capital preservation. Investing 101. Rule #1: don’t lose money. Rule#2: don’t forget Rule #1. 

If you’ve ever found yourself making up new excuses to hold a stock that just keeps dropping (and most of us have) well, you probably use stop losses now. 

The notion that the Chairman of the U.S. Federal Reserve Bank — the most powerful banker in the world — would ignore such a basic rule of investing is a problem.

The fact that Powell is doing it again is an even bigger problem. 

Ship of Fools

As I write, the Dow Industrials is down around 500 points. It’s selling off because the latest inflation reading (the March consumer price index) came in higher than expected. 

Today’s negative reaction is Jerome Powell’s fault too. 

Back in November, he as much as promised three interest rate cuts in 2024, because the inflation beast was tamed.

Even as inflation numbers ticked higher every month this year, Powell has repeated the promise – saying the data doesn’t change the Fed’s outlook…

Investors now know something that Chair Powell doesn’t: inflation isn’t tamed and there aren’t going to be three interest rate cuts in 2024.

Now I can’t tell you if this is the end of the stock market rally. Seems to me, that the U.S. economy has been doing mostly fine with interest rates where they are. 

Jerome Powell didn’t need to do a damn thing. Instead, he opened his mouth and removed all doubt…


Briton Ryle
Chief Investment Strategist
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