Seth Wenig/AP Photo
Traders gather around a post as Twitter shares resume trading on the floor of the New York Stock Exchange, October 4, 2022.
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.
