This week, the Federal Reserve decided to maintain the federal funds rate, keeping it steady within a target range of 5.25% to 5.5%. This announcement followed the recent two-day FOMC meeting.
What caught the stock market off guard were the remarks made by Fed Chair Jay Powell after the official statement. Powell emphasized that the Fed requires greater “confidence” in the current slowdown of consumer price inflation before considering any rate cuts.
Powell’s assertion that rate cuts are unlikely to occur at the upcoming March meeting unsettled markets, leading to a sharp sell-off. The S&P 500 fell by 1.6%, while NASDAQ saw a decline of 2.2%. Alphabet’s shares plummeted 7% after reporting disappointing ad revenues.
The Fed is navigating a challenging situation, with consumer price inflation still above its 2% target. At the same time, some regional banks are struggling financially.
For instance, shares of New York Community Bancorp dropped 38% after announcing a fourth-quarter loss of $252 million.
In light of this, the Fed removed the phrase, “The U.S. banking system is sound and resilient,” from its statement.
This context raises concerns. It appears that another banking crisis among regional institutions may be lurking, with the potential to escalate this year.
Thus, the Fed must consider how to prepare a substantial liquidity pool to assist banks in crisis while simultaneously addressing consumer price inflation. This presents a significant challenge with no clear solution.
Before delving deeper, let’s provide some essential context.
Deep Time
Writer John McPhee introduced the concept of ‘deep time’ to describe stretches of time measured not in hours or days but in millions of years. Such a perspective dwarfs the human experience, rendering it nearly insignificant.
A friend of mine recently suggested that people overemphasize the Federal Reserve’s actions. Certainly, from the standpoint of deep time, the Fed’s decision to hold interest rates steady is trivial compared to geological events like the rise of the Himalayan Mountain Range.
Yet we cannot dismiss it entirely. We are human like you, part of a credit market that is centrally controlled by unelected officials catering to the interests of major banks. We find ourselves without much agency in these matters.
Even if the decisions made today seem inconsequential in the grand timeline, they have implications that affect daily life, threaten security, and jeopardize future stability.
This is our core concern. Labor generates value compensated by currency, yet that money has been compromised in favor of bankers and government spenders, alongside their beneficiaries.
This imbalance is not only unjust but fosters disarray and unrest.
Extreme Malinvestment
As 2024 unfolds chaotically, punctuated by intermittent stock market highs, illogical presidential campaign rhetoric, escalating geopolitical tensions, and domestic discord, one fact remains certain: the malinvestment induced by the Fed and Treasury over the last 40 years will only intensify.
Madness will escalate into greater madness. Stock market bubbles will inflate, only to inflate further. Risky speculators will chase outsized returns, while fund managers gamble on technology stocks to match index performance.
Indeed, until the inevitable crash occurs, logic will be abandoned, and irrationality will reign. As the market melts up driven by late-stage technology trends, greed will overshadow common sense, leading many astray.
At the same time, fundamental analysis will be disregarded, historical norms ignored, and prudent investment practices sacrificed in favor of speculative excitement.
The Fed’s monetary policy may remain stable for now, but the federal government’s fiscal policies are spiraling out of control.
The latest Monthly Treasury Statement reveals a $510 billion budget deficit for the first quarter of the 2024 fiscal year. At this pace, the government is on track to face a $2.4 trillion deficit by the end of FY2024.
Do You Have a Passion for Political Solutions?
Like the turmoil brought on by central banks, the chaos from Washington’s massive deficit spending follows a questionable rationale.
Why would President Biden halt the approval of LNG exports at a time when European allies are increasingly reliant on American natural gas?
Is he misjudging the situation? Does this pause relate to climate change, as he claims? And if the planet is warming, is carbon emissions the cause?
The answers to these inquiries may be less critical than the underlying motivations for political resolutions. The drive for such solutions often channels resources away from workers and savers for the benefit of insiders.
Industries such as renewable energy, defense, education, finance, and healthcare thrive on government intervention, creating what appears to be wealth backed by poor investment decisions.
Absent such policies, those involved would likely shift their efforts elsewhere. Yet, they remain focused on initiatives that seem prosperous.
Unfortunately, the pervasive government influence on the economy will continue until the structural debt collapses, leading to a prolonged period of disarray.
Until then, each recession or deep economic downturn will be met with increased spending initiatives and more debt-driven malinvestment, paving the way for further madness.
Choose your investments wisely.
Sincerely,
MN Gordon
for Economic Prism
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