Commitment to Blow Bubbles

The lead image is from Fed Holds Policy Steady as Economy Stumbles.

The Fed's Lovey-Dovey All Around FOMC Statement shows the Fed's commitment to blow bubbles is still intact.

Eight Key Takeaways

  1. Whatever It Takes: Undertake open market operations as necessary to maintain the federal  funds rate in a target range of 0 to 1/4 percent.
  2. Full Range of Tools: The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
  3. Accommodative Financial Conditions: Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. 
  4. Let Inflation Run Hot: With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. 
  5. No End Date to Accommodative Stance: The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.
  6. Pile on More QE:The Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.
  7. Roll Over QE Auction Proceeds: Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS.
  8. Set Low Primary Credit Rate: The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 0.25 percent.


In its statements, the Fed made no mention of the obvious bubbles it is blowing. Powell did take questions on speculation in the Q&A that followed. 

Price Stability

Fed chair Jerome Powell would not recognize price stability if it jumped out of the audience and spit grapefruit juice in his eye.

Somehow the Fed is wedded to a goal of 2% inflation with no explanation as to why the goal should be 2% in the first place.

The Fed's commitment to 2% inflation is galling. It cannot see the rampant inflation right under its nose or it is purposely looking the other way.

Offsetting Errors

The idea that one can offset errors by further errors in the other direction is pure nonsense.

It's as if a doctor said "For the last three months we gave you too little medicine so for the next three months we will give you too much.

No Economic Benefit to Inflation

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.


There is no economic benefit to inflation but there are winners and losers. The winners are those with first access to money, namely the banks and the already wealthy.

Asset Bubble Deflation

Consumer price Inflation may be tame, assuming you believe the CPI.

It’s asset bubble deflation that is damaging. 

Q&A on Bubbles

BIS Deflation Study

The BIS did a historical study and found routine price deflation was not any problem at all.

"Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive build up of unproductive debt and asset bubbles that eventually collapse.

The problem is not deflation, it's the Fed's misguided attempts to prevent it.

Asset bubbles in housing and speculation in stocks like GameStop are as obvious a Pinocchio's nose. 

In the Q&A after the meeting, Powell dismissed asset bubbles saying they were based on speculation on vaccines and fiscal policy, not monetary policy.

I disagree. Interest rates are ridiculously low at 0.25%. Real interest rates are hugely negative, way more than widely believed factoring in housing prices. 

 The Fed is doubling down on mistakes.


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