In today’s fast-paced world, clarity, simplicity, and elegance often seem elusive. While they are more crucial than ever, their presence is dwindling. As we delve into the complexities of modern monetary policy led by figures like Fed Chair Jerome Powell, we find that simplicity is overshadowed by confusion and complication.
It’s evident that few people are prioritizing these essential qualities. Instead, there is a prevalent desire for complexity and confusion to permeate almost every aspect of our affairs. This is particularly noticeable in the delivery of professional services. The execution of contracts has become a tangled web of unnecessary tasks, with genuine work taking a back seat to trivialities and excessive documentation. Time and resources are drained by obligatory online tools that add layers to what should be a straightforward process.
Over time, reasonable terms and conditions have morphed into an unwieldy quagmire. Despite their original intent, these have transformed into burdens reminiscent of tax regulations or local zoning laws that must be meticulously adhered to. In fact, many jobs now depend on the very fake work tangled within simple contracts. Auditors, contract managers, accountants, and other professionals thrive on this system – but what would happen to them if the complexity were stripped away?
The disappearance of this extraneous work could potentially quadruple the unemployment rate overnight. Just like fabricated currency, this fake work continues to proliferate, creating an ecosystem where more fake work is necessary to sustain the illusion of productivity. A return to clarity, simplicity, and elegance feels like a distant fantasy, akin to longing for a bygone era of genuine agreements or sound monetary principles.
Plotted Dots
Likewise, the realms of monetary policy have witnessed a decline in clarity and simplicity. Today’s “fake money” demands a convoluted structure of central planners and a rudimentary method of price control. The underlying notion suggests that a committee of central planners can shape the future by manipulating credit markets.
A significant element in this process is the infamous dot plot. If you’re unfamiliar with the dot plot, brace yourself for some unsettling truths.
The dot plot is a visual representation of each Federal Reserve Governor’s anonymous predictions regarding the federal funds rate. Each dot signifies their best estimate of what the appropriate federal funds rate should be at the end of each calendar year, spanning a period of three years and a longer-term projection.
Various models inform these plots, with many relying on questionable aggregate economic data. The result is often flawed; garbage in, garbage out, leading to a cycle where poorly informed assumptions produce skewed outcomes.
This exercise borders on absurdity, as it reveals just how muddled and coarse our monetary policies have become, causing distortions in both the economy and financial markets. Recently, during a talk at a Stanford University economics summit, Fed Chair Jerome Powell offered the following observation:
“If you are too focused on a few dots, you may miss the larger picture.”
Unfortunately, Powell seems to have overlooked that larger picture…
Why Fed Chair Powell’s a Laughingstock
Just recently, Powell concentrated on these dots and determined that the federal funds rate should remain between 2.25 and 2.5 percent. In conjunction with this decision, he reduced the interest on excess reserves (IOER) rate by 5 basis points to 2.35 percent, as detailed in an implementation note.
Powell maintains that this “technical adjustment” is meant to motivate banks holding excess reserves to seek better returns elsewhere and to prevent the federal funds rate from exceeding its upper limit. During the Fed’s press conference, he further clarified:
“We do think it’s important that we are able to control the federal funds rate and generally keep it within the range. That’s just good monetary policy, monetary control. So we think it’s important and we have the tools to do that so we’ve used them again today and, again, this is just a technical fix. It really has no implications for policy.”
Or does it?
According to government reports, the unemployment rate stands at 3.8 percent, while real GDP surged by 3.2 percent in the first quarter of 2019. Additionally, the S&P 500 and Nasdaq are reaching record highs.
Given such positive indicators, why is the Fed not normalizing monetary policy? What is the point of this seemingly absurd technical adjustment? Perhaps the economy isn’t as robust as the surface data suggests.
More critically, we should question the very existence of the federal funds rate. The work involved is inherently flawed and inauthentic. The plotted dots carry little meaning, and the overall discourse surrounding Fed Chair Powell seems rather farcical.
Sincerely,
MN Gordon
for Economic Prism
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