Unravelling the Bernanke Mistake..
This is a copy of our August 13, 2022 blog post.
All this talk of stagflation gets us nowhere…
- We need a realization that a 3.5 percent Fed Funds rate is normal, that everything that Bernanke did was abnormal.
- We need CEO’s who can work in that environment and produce 5 percent growth, the slow growth environment during the 2009-2019 decade has to become history.
- Things are changing.
- No longer can the public tolerate the Fed inducing a recession to cover up its mistakes.
- The idea that the Fed sets the yield curve is a preposterous view, they only set one end of it, market/bond vigilantes/sentiment do the rest.
- With markets trying to unroll the one-off Bernanke-Powell Mistake, it is a huge leap to even mention that an inverted yield curve always leads to a recession.
- The yield curve at the moment does not say recession so much as that the market is not used to working with producing 5 percent growth with 3.5 percent rates. No doubt the market has a steep learning curve in its face, but it can do it with the current government fiscal economic posture.
- Bottom line, the Fed should not pivot in their goal of a 3.5 Percent Normal interest rates. Let old time economics prevail. We may have to live with 4 percent inflation for a couple of years as things normalize, we are not directly going down to 2.0 % from 9.0%. The equity markets are already suggesting that they are up to the task of working with 3.5 % interest rates and 5 percent growth.