How Attuned Is the Fed to the US Economy?

Americans can be split into two camps: those who trust the Federal Reserve to guide monetary policy and lead the economy to a soft landing, and those who don’t trust the Fed. Either the Fed will pull off one of the greatest feats in history by averting a recession, or it will fail spectacularly. There doesn’t seem to be any alternative.

Reading the Fed’s monetary policy statement after last week’s Federal Open Market Committee (FOMC) meeting, you could be forgiven for thinking that it was a perfectly dry, monotonous statement. But unless you’re a keen observer of the economy who keeps up to date on economic data, you might not have noticed that the Fed’s statement went off the rails from the first sentence.

Perception and Reality

The FOMC statement started off with this sentence: “Recent indicators point to modest growth in spending and production.” That first sentence alone was enough to jar anyone who has kept tabs on what is going on with the economy.

Manufacturing surveys have shown three straight months of contraction, with analysts describing the data as showing how goods production is declining and output is decreasing. So how can the Fed state that there has been modest growth in production?

Things aren’t much better on the spending side of things either. Personal consumption expenditures (PCE), one of the Fed’s favored pieces of data, peaked in October before contracting in November and December. So how exactly is that modest growth in spending?

This puzzling contradiction between the actual numbers and the Fed’s statement gives rise to a number of questions. Does the Fed actually know what’s going on with the economy? What is the Fed trying to do? Why is there a disconnect between economic data and the Fed’s statement?

The Fed and Data

Over the years Federal Reserve officials have constantly reiterated how many of their monetary policy actions are driven by data. But for people on the outside, we don’t often know which data Fed officials are referring to.

Even when we know that the Fed likes to look at PCE or core PCE, or at the producer price index, or at core CPI, we don’t know how moves in those data might correspond to monetary policy decisions. Even worse, when we don’t know which data Fed officials are looking at it makes it even harder to try to guess what the Fed is going to do.

When manufacturing data indicates a slowdown, but the Fed states that production is growing modestly, which data is the Fed looking at? When PCE declines but the Fed states that spending is growing modestly, what consumption figures is the Fed using?

You have to either assume that the Fed is using its own cherry-picked data that the rest of us don’t have access to, or you have to assume that the Fed is once again trying to jawbone markets into doing what it wants, even though what the Fed is saying has no relationship to reality. Neither one of those scenarios is exactly confidence-inspiring.

If the Fed is using its own data, and if its interpretation of that data is the complete opposite of what most of the rest of the country thinks based on publicly available data, that’s a problem. But more likely, the Fed is trying to frame the narrative by pushing its own view of the economy on us, and in a way trying to gaslight us by ignoring the clear data and trying to get us to question what we can clearly see through both data and personal experience.

Remember how the Fed first tried to claim that inflation wasn’t going to happen, even though everybody saw prices rising at the store? Then it tried to claim that inflation was only transitory, even though most people realized it was probably going to stick around for a while. And yet, after these major misreads or even potentially deliberate misinterpretations of economic data, we’re supposed to believe that the Fed is going to get inflation under control and engineer a soft landing? Yeah, right.

Protect Yourself Against the Fed

As the first sentence of the Fed’s FOMC statement should make clear, the Fed has once again either completely misjudged the state of the US economy or is attempting to get markets to accept its view of the economy so that markets will move without significant monetary policy action. Neither one of those is a good thing.

If the Fed has misjudged markets and the economy, then its monetary policy actions are bound to fail, as misdiagnosing the disease will necessarily result in a cure that is incorrect. But if the Fed is merely trying to jawbone markets and get them to price in monetary policy loosening without actually loosening policy, that can only work for so long before the Fed needs to put the rubber to the road.

It seems that the Fed is playing with fire here, as in either case it is playing a dangerous game in which it risks losing control over interest rates and falling behind the curve when it comes to both combating inflation and trying to prevent a recession. The Fed may want us to think that everything is looking fine in the economy, but most of us know better.

Knowing what we do, that the economy is performing worse than the Fed thinks or wants us to believe, we have to understand that the Fed will likely fail to react quickly enough to changing market conditions, just like it failed to react quickly enough to rising inflation. So if you thought the Fed was going to swoop in and save the day, that’s probably not going to happen.

Protecting yourself against that likelihood means taking steps now to safeguard your assets in the event of recession, because there’s a good chance that the Fed isn’t going to be able to prevent a 2008-style crisis. Staying unprotected with the risk of crisis increasing could potentially cost you dearly if we end up having a severe recession.

That’s one reason so many Americans today are choosing to protect themselves and their financial assets with gold and silver. Gold and silver shrugged off the malaise that pervaded the economy post-2008 and took off to record highs. Many people who kicked themselves back then for not having bought gold and silver vowed not to make that mistake again the next time around. Hence the growing popularity of gold and silver coins and bars today, particularly when purchased through a precious metals IRA.

Whether you want to start a gold IRA, purchase some gold and silver coins to store at home, or do some combination of the two, Goldco can help you get started. With over $1 billion in precious metals placement and thousands of satisfied customers, our experts can help you get started in safeguarding your savings with precious metals. Call Goldco today to learn more about how gold and silver can help you.