The sight of steam pouring from the cavernous regions beneath the Orange Man’s mop top was well worth the wait. And that goes, too, for all the squealing and gnashing of teeth among the gamblers down in the canyons of Wall Street.
Indeed, in doing the right thing Kevin Warsh seems to have actually left the voluble occupant of the Oval Office to sputter in a fog of protectionist pettifoggery:
“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment! If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. The word ‘Deficit’ is nothing more than a fancy word for LOSS. We are ‘carrying’ almost every country in the World, and that cannot go on any longer. LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!”
The fact is, the Fed’s so-called target rate (Fed funds) has been been way too low for decades. Moreover, that long-running error has led to nothing except egregious inflation of financial assets, wildly excessive debt formation and a flood of malinvestments, misallocations and grift, as we have explained early and often elsewhere.
But to be clear, we are not talking about merely a “one and done” or “two and through” kind of tactical hawkish tilt owing to the self-evident upside risk to the inflation component of the Fed’s so-called dual mandate. The real problem is much, much bigger: Namely, that the whole misbegotten enterprise of money market rate targeting and pegging one-month at a time has been a complete failure.
