The Fed’s Great Pause… And What Happens Next
The comments below are an edited and abridged synopsis of an article by David Stockman
Every headline in the financial press last week said the same thing: The Fed’s “Great Pause” has now commenced. The Fed raised interest rates by a quarter point—and could be done.
It might be done raising rates, but it shouldn’t be in the rate setting business in the first place. That’s because market capitalism doesn’t work if financial asset prices are being pegged artificially and falsely by a 12-man monetary politburo rather than the vast throng of suppliers and users of funds in the global marketplace.
The Fed has made overnight money so cheap that it has distorted the very warp and woof of the entire financial system. All financial asset prices have been drastically falsified because 221 months of negative carry costs in real terms have triggered reckless leveraged speculations, rampant options chasing and dangerous financial asset arbitrages like never before.
Up for discussion: The inflation-adjusted Fed Funds rate since October 2001; growth of small bank CRE loans, C&I loans, C&I loans and Treasury/Agency Debt Securities, 2014—2023; and outstanding balances and interest rates on the Fed’s overnight reverse repo facility.