From Evans’ wiki; In December 2012, the Federal Open Market Committee decided to change its broad forward guidance to a more explicit rule. The Evans Rule, a version which had been advocated by Charles Evans for many months, stated that the Committee will hold rates near zero at least until unemployment falls below 6.5% or inflation rises above 2.5%. The Committee in March 2014 decided to remove the mention of the explicit thresholds in its guidance, but emphasized that there has been no change in the stance of monetary policy.
May 2021, Chicago Federal Reserve President Charles Evans told CNBC: “To average 2% you’ve got to be above 2% for some period of time,” he said. “So inflation rates of 2.5% don’t bother me as long as it’s consistent with averaging 2% over some period of time.”
For a decade, Evans has persistently extended the target directive of the Fed’s monetary policy. Stretching the explicit threshold of inflation by 350 percent. It’s obvious that Evans has no forward plan for monetary policy, except for endless liberalization. His statistical nonsense of “r*” leaves out his values “b” and “s”, integrated over time to infinity.
killben
2 years ago
Of all the crackpots taking a seat at the Fed,Evans takes the cake.
I had wondered how is it possible to put together a bunch of crackpots like those at the Fed before I realized that one of the qualification to take a seat the Fed is “being a crackpot”. No wonder Evans made it with ease and is on Top of the class
Jackula
2 years ago
Unbelievable, saw similar claptrap in an LA Times editorial piece. The middle class in the US is vaporizing primarily due to FED policies.
TCW
2 years ago
Just a thought, but I wonder how the Buffett Indicator would look if it was normalized by the prime interest rate. Back when Buffett came up with it interest rates had never been so low. I expect the 2000 peak would be much higher than today.
The other thing I see wrong with the Buffett Indicator is that I believe large corporations have been taking over a larger and larger portion of the economy, as small businesses either get crushed or absorbed. Thus, you’d expect to see it rising over the years. Is it rising faster than their share of the economy, and thus it indicates over-valuation? Probably, but how much, I don’t know.
Agave
2 years ago
Has anyone here seen a reasonable study on the impact of the trade tariffs applied in the previous administration on overall domestic price inflation to date, and in the study a caveat which might also account for related impacts of the pandemic on this tariff influence on prices?
I realize it’s just a sub-element of all the inputs including the increased money supply, QE, low interest rates, supply chain problems, asset inflation, and all of those and their ultimate effect on prices, but I’m curious if anyone has attempted to isolate the degree of impact of these tariffs with any degree of accuracy.
get
2 years ago
I agree with him and so does Luke Gromen. There’s only one way out of this mess and that’s with inflation otherwise we get debt crash deflation which would be worse.
There’s only two options for the debt: Inflate it away or write it off.
And that, right there, is the problem. Trying to inflate it away makes it worse because the interest on debt will explode, and consume the budget, requiring cuts in services and entitlements.
kiers
2 years ago
hmmm…..note to self…”Chi Fed Prez is goofball….” double underlined, circled.
Seriously, my freshman writing professor would rate that 650 word essay as pompous pointlessness unworthy of reader attention. Yes but no, up but down, left but right, likely but not really….
I did learn a shocking sophistry hack, though: when the Fed say “2%” average target, they are referring to a cumulated 2% rate applied to 2007 PCE index, compared to today?! THIS is what they call “average inflation targettting”?!? OMG. This puts it very concretely.
Also, I’ve been saying in many places but no one heeds: Janet Yellen has advocated a “high pressure economy” since 2016.
great post mish. very informative. however i must remind myself always that the FED is owned. by private bankers mostly and a few unions. they need inflation to keep their ponzi system easier to fund. they are not dumb. they are not ignorant or confused. they have one mission. to keep the owners of FED solvent and profitable. inflation is easier for that. of course they are NOT omnipotent. they might fail. looks to me like they will as bubble bursts.
Vanderlyn is spot on. Fed is not dumb by any stretch. They are doing exactly what they were set up to do at Jekyll Island. Mish, you’ve been a bear for 10 years and a gold bug to boot. It’s not that I think you’re wrong…I just think that fiat has as many zeros as they want it to have when it comes to the market.
creature of jekyll island should be required reading for all sophomores in HS. amazing how few financial professionals have no clue about it. i guess that’s to our advantage. knowledge is power.
Keep in mind, too, that the Fed would have nothing to do if the Government would balance the budget. By running increasing deficits, they fiscal policy keeps putting more balls in the air, and giving the Fed the job of trying to keep them from crashing to the ground. So many people spend time criticizing the juggling skills of the Fed without ever mentioning that if the government would stop putting balls in the air, there would be nothing to juggle.
Dean_70
2 years ago
Money NEEDS to be herded into bonds. Policy is wearing thin as evidenced by the rising rates. In an inflationary environment how can you heard money from various assets into bonds to keep rates from shooting up even faster? War
Got gold?
thimk
2 years ago
let me throw this out there: The feds did have some control over the USA economy back when we were more of a closed system . Today where globalization/ financialization is prevalent , their legacy tools/mindset are no longer as effective .
i think the whole purpose of having all this fakely created inflation, (see my Yellen plan in comment above) is to enable re-shoring while bamboozling the public.
Captain Ahab
2 years ago
Got time for some fun in these serious times?
Paul J. Ferraro and Laura O. Taylor (Georgia State
University) asked the following question at the 2005 annual meeting of the
American Economic Association: “You won a free ticket to see an Eric
Clapton concert (which has no resale value). Bob Dylan is performing on the
same night and is your next-best alternative activity. Tickets to see Dylan
cost $40. On any given day, you would be willing to pay up to $50 to see Dylan.
Assume there are no other costs of seeing either performer. Based on this
information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b)
$10, (c) $40, or (d) $50?”
Without giving away the answer, only 21.6 percent of professional economists answered
correctly—a dismal performance because a random answer would be 25 percent.
I measure all opportunity costs like this against my hourly rate which is way above any of the offered answers listed. There should be an answer: (e) Your hourly wage rate.
Here’s one for you. You make $300/hour and you are given a free ticket to see Eric Clapton worth $50. Do you take it or work an extra hour for $300 so you can take that money and invest it?
$10, because by going to see Clapton, they gave up the opportunity to see Dylan for $10 less than they were willing to pay.
denker
2 years ago
The FRB slogan should be ‘Doing more harm than good for 107 years’. If monkeys throwing darts can pick stocks better than most fund managers what animal should be setting the interest rates? Rather have markets set them than these pompous windbags lost in their models and charts but possessing no common sense.
Captain Ahab
2 years ago
Charles Evans is the ‘genius’ behind the the Evans Rule, circa 2012.
“The Committee (FOMC) will hold rates near zero at
least until unemployment falls below 6.5% or inflation rises above 2.5%.”
He has a doctorate in economics from Carnegie. Gotta wonder.
Eddie_T
2 years ago
I bought more NEM today, along with BHP, RIO, ET, and finally, IEP…which is Carl Icahn’s dividend king MLP. I like MLP’s for the tax advantage for high earned-income professionals. I will build bigger positions in these large cap commodity plays for a while, and wait for the lows to add to my small and mid-caps O&G’s and uranium stocks.
thanks for trading ideas. guys like you makes this blog better. build blog better. ha ha
TexasTim65
2 years ago
I mentioned this a while back (month or two), but I expect the Fed to come out with a statement that is the equivalent of ‘Whatever is currently happening is exactly what we want to happen’.
This guys crazy comments prove I was was right. In an effort to assure the Markets and everyone else that everything is under control and there is no reason to panic they are going to claim high inflation is good and exactly what they wanted.
Eddie_T
2 years ago
It’s all theater, carefully scripted to give markets a carrot and a stick. The primary objective of cooling demand has basically already been accomplished without a shot being fired or any rates being raised. Now raises of 50-75bps will be done and some MBS’s will be sold, and there will be more market weakness and maybe a mild recession to complete the act….to be followed by more QE and more Fed balance sheet increases, because this path was chosen 14 years ago and there really isn’t any way we don’t keep leveraging up the banking system to buy government debt…until something does break…..maybe in a few years time. There are limits and lots of potential Black Swans that can’t be known. We’re in completely uncharted waters.
I am getting confused. On the one hand, the fed controls nothing and cant save anyone and on the other hand, the fed orchestrates bubble after bubble and dominates everything in the economy. Why the bipolar view?
At one point, inflation was transitory and now its the inflationary apocalypse. Another bipolar view.
Any time yields invert, a recession is imminent until it isnt or doesnt show up.
Why not just say the economy is like a bucking bull in a china shop and bad things are probably going to happen?
As others here have pointed out there are three real time bombs:
1. demographics – 60 million boomers will all be 65+ by 2030, what is the ecomonic impact in terms of labor force, productivity, strain on social systems, and consumption?
2. debt – Yes, there is too much and if interest rates rise then there will literally be hell to pay but when and where to hide.
3. debauchery – the planet is being trashed at unprecedented levels, forget climate change, how do I stop eating plastic when its being used as feed for animals these days?
Seems these three topics warrant far more exploration than “Fed=bad” because that doesnt help anyone here unless we all get pitchforks and torches and head over there but thats another story.
Not trying to be facetious but what would an in control fed look like? I get that the perfect fed is no fed but barring that what *should* the fed do because I doubt they will shut down anytime soon.
An astute observation. The three countries that I can think of that don’t have a central bank like all the others around the world are Iran, North Korea and Cuba. Is this the right course of action for a fed free environment?
Work on your carefully selecting single sentences to buld your counter argument. Werent you the one who said recession would start after the free government money ended then came up with excuse after excuse as to why it didnt. That was all last year too.
Yes, keep calling for recession every other comment, eventually you will be right at some point.
there is no dual mandate in reality. one mandate. to keep her owners solvent and very profitable. all that other dribble is for show. best to read creature from jekyll island and also how and why andrew jackson sunk the first central bankers of private northern city banks.
“So, is the Fed really in “control” of anything, or is the whole damn thing an illusion? “
…
Yes. They seem in control when things are moving in desired direction. But when sentiment changes they’ll be out of luck. I see them as (financial) curlers … with their brooms. Influence (which IS a form of control) but not in TOTAL control. I agree with your nuance. Not a black or white situation.
I’ve stated before they’ll be most effective after collapse, when sentiment is rock bottom (but looking for an excuse to turn up). Expansion of balance sheet + buying equities* (via ETFs) likely on the docket.
*Not currently allowed, but Yellen and others have pushing for this mandate. I doubt Congress says NO after markets rocked.
The Fed is in control, until it isn’t. The driving force is Keynesian economics for dunderheads. In other words, the underlying model is fundamentally flawed.
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There’s only two options for the debt: Inflate it away or write it off.
Vanderlyn is spot on. Fed is not dumb by any stretch. They are doing exactly what they were set up to do at Jekyll Island. Mish, you’ve been a bear for 10 years and a gold bug to boot. It’s not that I think you’re wrong…I just think that fiat has as many zeros as they want it to have when it comes to the market.
Paul J. Ferraro and Laura O. Taylor (Georgia State
University) asked the following question at the 2005 annual meeting of the
American Economic Association: “You won a free ticket to see an Eric
Clapton concert (which has no resale value). Bob Dylan is performing on the
same night and is your next-best alternative activity. Tickets to see Dylan
cost $40. On any given day, you would be willing to pay up to $50 to see Dylan.
Assume there are no other costs of seeing either performer. Based on this
information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b)
$10, (c) $40, or (d) $50?”
correctly—a dismal performance because a random answer would be 25 percent.
least until unemployment falls below 6.5% or inflation rises above 2.5%.”
Fed Uncertainty
Principle Tweet
https://twitter.com/MishGEA/status/1494769575119900672?s=20&t=aN0JzQJuFFYXHMfHhHrOLw