The market seems like it is on the edge of its seat awaiting the outcome of the Federal Reserve’s meeting today. In the midst of a 40-year high of price inflation, the Federal Reserve is expected to raise the federal funds rate by a quarter point. Federal Reserve Chairman, Jerome Powell, testified before Congress earlier this month and stated,
“I’m inclined to propose and support a 25 basis point rate hike. … [The central bank is] prepared to move more aggressively by raising the federal funds rate by more than 25 basis points [if inflation does not come down as expected].”
They’ve been hinting at raising rates for a while now, but they know they are stuck between a rock and a hard place. Raise rates and spark a recession (depression, maybe)? Their buddies at the banks and in Wall Street won’t be too happy with them. Or the Fed can maintain the status quo and continue currency devaluation, resulting in further price inflation. The question is what effect a rate hike will have on the markets and price inflation. We shall see.
The federal funds rate has been held at 0.08 percent for a while now. But is a rate hike just a fart in the wind at this point? A rise of the federal funds rate will most certainly drive a corresponding rise of market rates. But, by how much?
Perhaps the main driver of market interest rates is the ability of the Fed to manipulate the money supply and thereby trick the market into thinking that the economy is healthy and full of capital when it is not.
The Fed has been insanely “easing” the money supply over the last two years. From an initial spike in March of 2020, the Fed has been steadily purchasing assets totaling nearly $5 trillion over a period of just two years. When you hear that the Fed is “tapering” its asset purchases, know that it is a relative term compared to the previous insanity. So far, there is no sign of real “tapering” from my perspective. But it likely won’t take much of a reduction in asset purchases to shake market support.
Of the assets held by the Fed, roughly a third is in the form of mortgage-backed securities. The remaining portion is held in government bonds, no doubt, to cover federal expenditures. This is “printed” money injected directly into the economy. So it shouldn’t be a surprise to anyone paying attention that the general price level is soaring (the value of the currency is dropping). It was just the other day that Congress rammed through a $1.5 trillion dollar spending bill in a matter of hours. It is 2,678 pages long so you know they didn’t read the damn thing. Price inflation will be “transitory,” they said. Ha!
Whatever the outcome of the Fed’s decisions today, if the market shakes and/or price inflation continues to soar, the establishment will likely deflect blame to Russia, profiteering, or hell, maybe even to their other hated group … the unvaccinated. The Federal Reserve won’t even be mentioned in the conversation. So, grab some popcorn and watch the show.