Are the officials at the Federal Reserve finally showing uncharacteristic signs of humility?
Not really, unfortunately.
Instead, recent murmurs from the Fed that it is running out of tools—that it cannot do it on its own—that it is essentially impotent—seem to be an attempt to absolve the central bank of blame for the unavoidable crisis that will soon be at hand.
Many of us saw this coming. But it's still worth taking a look at how this circus has unraveled.
In recent weeks, as the mounting risks for the global economy have continued to cause the system to teeter on the edge of implosion, the talking heads at the Fed have changed their normally condescending tone. In some ways, Fed officials have actually revealed their institution's own impotence.
Several FOMC members have made appeals to Congress for help, conceding the supposed limits to the central bank's power. It appears that the Fed is backtracking in an effort to deflect blame when everything inevitably blows up in their (and our) faces.
If this is true, then why does the Federal Reserve insist on trying to micromanage the economy with its centrally planned schemes, interest-rate manipulation, and duplicitous rhetoric? Who are we, China?
Perhaps the only thing that the Fed has actually been right about in their complaints is that there has been no accompanying fiscal policy amid its prolonged use of extremely loose monetary policy. Washington simply spends and spends—but this lack of legislative action is being cited as merely more cover for the Fed not to accept blame.
St. Louis Fed President James Bullard recently said, “There’s no magic wand” to solve all of our financial problems. This is undoubtedly true: monetary policy is no panacea to the problems the global financial elite have created. Yet the Fed has acted as though this was indeed the case all along!
Masters of Mixed Messages
For more than a year, we've been teased by a spate of contradictory economic signals. For instance, consumers seem rather optimistic this summer (and pundits are already talking up the annual winter season "Santa Claus rally" six months in advance); meanwhile, businesses have been on the opposite side of the fence, demonstrating a pessimistic outlook and refraining from making new investments. Capital expenditures and durable goods orders have been particularly weak.
Naturally, the Fed fuels these paradoxical narratives. At the conclusion of its July meeting on Wednesday, the FOMC held interest rates (as expected) but predictably peddled a more hawkish outlook in order to leave the door open for a September rate hike.
Was it Voltaire who said, "The truest sign of intelligence is the ability to hold two contradictory opinions simultaneously"? By his 18th-century philosophical standards, the Fed may well be brilliant.
In the aftermath of the FOMC decision, the dollar fell and precious metal prices rose. Gold has been the one constant in this confusing equation: the more out-of-whack the economic picture grows, the more safe-haven demand will buoy the gold price.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.