Is the Fed Flying Blind on Monetary Policy?

At a time when the US economy is headed toward recession, financial markets more than ever want certainty from the Federal Reserve that the Fed is ready to step into the breach to prevent another financial crisis. What they were expecting from Fed Chairman Jay Powell at last week’s Jackson Hole conference was a strong, confidence-inspiring speech. What they got was anything but.

For those Fed-watchers who adhere to the Austrian School of Economics, Powell’s speech wasn’t anything new or groundbreaking. We understand that the Fed’s conduct of monetary policy is responsible for the booms and busts of the business cycle, and that the best we can hope for is for the Fed to accidentally stumble upon a policy that doesn’t screw things up too badly. But for those who actually trust the Fed to manage the economy, Powell’s speech cannot have been confidence-inspiring.

Highlights of Powell’s Speech

If you had to pick one part of Powell’s speech to sum it up, it would have to be in the conclusion, when he said: “As is often the case, we are navigating by the stars under cloudy skies.” The metaphor sounds vaguely poetic at first, until you pick it apart.

Just imagine a sailing ship navigating in the middle of the Atlantic Ocean long ago, heading westward toward the New World. The captain is experienced in celestial navigation, but the nights are overcast and cloudy.

He keeps staring at the sky, desperate for a glimmer of starlight, but nothing comes. That’s probably a scenario that happened to many a ship over the course of history. Some got lucky and made landfall, while others may have perished, never to be heard from again.

Of course, when the ship is actually the US economy, having the head of your central bank admit that he’s basically just hoping for good luck isn’t exactly something that warms the hearts of those whose financial well-being is dependent on the Fed’s conduct of monetary policy. So you can understand that many Americans are understandably nervous about the Fed’s ability to engineer a soft landing.

But Powell is determined to stay the course. He said as much in the last line of his speech: “We will keep at it until the job is done.” That job, of course, is to bring inflation down to the Fed’s 2% target, and he openly acknowledged that the Fed is expecting slower economic growth to result from that push to tackle inflation.

For those on Wall Street who had hoped that the Fed might pivot to rate cuts later this year, Powell’s comments must have hit like a bucket of cold water. With inflation still at 3.2%, there’s still a long way to go until the Fed feels comfortable enough to ease up on the tightening. And don’t be surprised if the Fed keeps this up even in the face of a looming recession.

How Likely Is Recession?

It seems that every day brings new news of declining economic activity. Whether it’s another company laying off thousands of employees, a business seeing a drop in sales or revenues, or further declines in manufacturing, factory orders, or shipping, the incidences of decline are too numerous to be merely coincidental.

More and more it appears that the economy is slowly drifting toward recession. But while these lower-level indicators continue to pile up, the macro indicators that the Fed and others use to judge recession have yet to catch up to what’s happening on the ground.

We’re watching a slow motion recession developing right in front of our eyes, yet those tasked with preventing recession (if such a thing were even possible) are seemingly oblivious to the obvious reality in front of us. And so it appears that the Fed, once again, will be caught flat-footed when the recession becomes obvious to everyone, and will have to resort to extraordinary measures just like it did in 2008.

We’re also seeing the lag effects of monetary policy in real time too. While the Fed has cut the size of its balance sheet for months, which had the result of shrinking the money supply, there was a noticeable blip in March, when the Fed intervened to shore up the banking system in the wake of a couple of major bank failures.

That blip showed up a few months later in the overall economy, with the money supply rising again, followed a few months later by a juiced up stock market and finally a small increase in the inflation rate. With the Fed having subsequently returned to shrinking its balance sheet, we should be seeing both markets and inflation resuming their downward trend in the coming months. And the reality that the economy is facing a severe recession should become more readily apparent.

Gold as Recession Protection

Many Americans have already seen the writing on the wall and have started to take steps to protect themselves and their finances against the coming recession. And a great number of them have done so by buying gold.

Gold has been trusted as a hedge against inflation and recession for centuries, and its performance during recent crises has helped buoy its reputation. During the 1970s, for instance, gold grew at an annualized rate of over 30% per year over the course of the decade, despite high inflation and a lackluster economy. And during the 2008 financial crisis, the gold price gained 25% during the same period that markets lost more than 50% of their value.

It’s no wonder that so many people are turning to gold once again today to protect their hard-earned savings. Many Americans watched as the money they built up for years dissolved away in 2008, and they’re determined not to repeat the same process the next time around.

If you have savings that you want to protect, and you’re thinking about buying gold to do it, now’s the time to start learning more about your gold buying options. With more than $2 billion in precious metals placements and over 5,000 5-star reviews, call Goldco today to find out why so many people have worked with Goldco to protect their wealth.