The takeaway …
I listened to Jerome Powell’s press conference held yesterday after the release of the Federal Open Market Committee’s decision on the federal funds target range. The FOMC decided to maintain the target range at 5.25% to 5.50% by keeping its administered rates, the discount window and the interest on reserve balances, at 5.50% and 5.40%, respectively.
As I listened to the reporters’ questions and Chairman Powell’s responses, I felt increasingly convinced that the financial media spends too much time ginning up fascination about the financial plumbing versus questioning whether the Fed is keeping its actions aligned with the philosophy of money and currency much less determining what that philosophy is.
I often wonder if Chairman Powell knows what the philosophy is, but I have to consider whether he is simply playing his knowledge of the philosophy close to the vest so that markets don’t become more confused.
Addressing the immediate noise of higher rates for longer, what that tells me is that markets are seeing greater risks that the current level of consumption is going to fall off in the next five to ten years and that yields should reflect this risk. If there is a pivot, it is not coming from the Fed but from the media. Just this morning I listened to a couple Bloomberg presenters raise the issue of data showing economic growth coming to a grinding halt. This appears to be a hard 180-degree turn from the noise about how resilient the consumer is.
Here on the streets of Atlanta, what I see in terms of activity puts me in the resilience camp. Atlantans don’t seem to be slowing down when it comes to eating, shopping, and drinking. Then again, Atlantans love to flex and what we are seeing on the outside may not reflect what is happening inside the household.
For example, Atlanta is among a number of cities where rents are allegedly falling. Given the number of units I see popping up, we just may have a supply issue that is driving down rent prices. Empty units have to bring in income somehow and putting them up for rent at a reduced rental price may be one of the tactics.
But back to the Fed’s and the financial media’s confusion. I believe that the confusion flows from the dual mandate the Federal Reserve is tasked with. Mandating that the Federal Reserve pursue an action plan that results in stable prices and maximum employment has doomed the Fed down a road with too many sharp turns and hidden ditches. I see the mandate as political narrative that was designed to get unsuspecting congressmen and an ignorant electorate onboard with supporting the creation of the Federal Reserve 110 years ago.
The Federal Reserve should have only one mandate: to encourage the flow of currency such that the State’s legal tender is validated. A simple, single mandate reduces confusion, and with streamlined measuring tools as to the mandate’s success, alleviates the need for the Monday morning quarterbacking that we get from the financial media.
This would be a real, meaningful pivot.
Alton Drew
2 November 2023
The stats ….as of 7:10 am, EST.
30-Day Fed Funds Futures: 94.655
Discount Window: 5.50%
Interest on Reserve Balances: 5.40%
Effective Federal Funds Rate: 5.33%
Federal Funds rate target range: 5.25%-5.50%
Prime rate: 8.50%
EUR/USD=1.06358
GBP/USD=1.21929
AUD/USD=0.64440
USD/JPY=150.355639
Sources: CME Group. Board of Governors-Federal Reserve System. x-rates.com.
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