The Fed’s Failures Are Mounting

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14-03-19 09:08:00,

Authored by Danielle DiMartino Booth via LinkedIn.com,

In the decade between “60 Minutes” interviews, the central bank has sparked a recovery without inflation but not much else.

Friday marks the 10-year anniversary of the Federal Reserve Chairman Ben S. Bernanke’s groundbreaking “60 Minutes” interview. To listen to current Fed Chairman Jerome Powell on the same show a decade later, the central bank’s best laid plans since then would seem to have played out according to script with one glaring exception: the Fed’s balance sheet.

When “60 Minutes” reporter Scott Pelley asked Bernanke if the Fed was printing money, his reply was,

“Well, effectively. And we need to do that, because our economy is very weak, and inflation is very low. When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.”

If the primary goal was recovery without inflation, the Fed delivered. Since the onset of recovery in June 2009, the core personal consumption expenditures index, which measures the prices paid by consumers for goods and services net of food and energy prices that tend to be more volatile, has been above 2 percent in in just five months in 2018, four in 2012 and one in 2011.

Critics of the central bank suggest that the massive surge in financial assets over the past decade starkly illustrates the need for the Fed to incorporate inflation gauges that take into account price gains of real estate and securities. One such gauge, the Underlying Inflation Gauge (UIG) created at the Federal Reserve Bank of New York, has hovered around the 3 percent level since last February. In other words, the UIG has been running north of the Fed’s 2 percent inflation target since November 2016. The justification for raising interest rates thus depends on the gauge used to guide policy.

As for Bernanke’s commitment to unwind unconventional monetary policy, it’s looking increasingly as if only a small portion of his promise can be fulfilled.

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The Fed’s “Wealth Effect” Has Enriched The Haves At The Expense Of The Young

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05-03-19 02:03:00,

Authored by Charles Hugh Smith via OfTwoMinds blog,

The Fed is the mortal enemy of the young generations, and thus of the nation itself.

“The wealth effect” generated by rising stock and housing prices has long been a core goal of the Federal Reserve and other central banks. As Lance Roberts noted in his recent commentary So, The Fed Doesn’t Target The Market, Eh?(Zero Hedge), Ben Bernanke added a “third mandate” to the Fed – the creation of the “wealth effect”–in 2010, the reasoning being that higher asset prices “will boost consumer wealth and help increase confidence” which will then lead to higher spending and all the wonderfulness of endless economic expansion.

But as Chris Hamilton explains in his recent essay Economic Doom Loop Well Underway, “the wealth effect” has enriched the already rich at the expense of the young who didn’t get the opportunity to buy the assets the Fed has pushed to the moon at pre-bubble prices. That privilege was largely reserved for those who bought a decade or two ago, before the Fed made boosting asset prices the implicit goal of all its policies.

Take a look at the chart of household net worth below. Household worth has soared from around $40 trillion in 2000 to $100 trillion in 2018–a gain of $60 trillion while the economy grew at a much more modest pace. Household net worth has leaped from $55 trillion in 2010 to $100 trillion in 2018–$45 trillion in gains for those who already owned stocks and houses.

As Chris observed,“non-discretionary items like homes, rent, education, healthcare, insurance, childcare, etc. are skyrocketing versus wages.” This is visible in the second chart of wage growth, which has hobbled along at 2% or 3% while stocks and housing have doubled or tripled.

The wealth effect has benefited the haves at the expense of the have-nots, the young who can no longer afford to buy homes or start families unless Mom and Dad provide the capital.

The nation is losing an entire generation as a result of the Fed’s cargo-cult like obsession with boosting the wealth of the haves. The wealth effect is the most generationally lopsided policy possible,

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