Is the Fed helping or hurting?
In an era where the loudest, most passionate voices often seem to gain credibility simply by cranking up the volume, it’s useful to back up and look at some of the fundamentals.
Monetary policy is complicated. It acts with long and variable lags. It’s easy to misunderstand, and even easier to distort. A lot of folks have garnered a lot of (underserved) attention for themselves and made a lot of money by attacking an institution that has multiple, conflicting mandates: low inflation, full employment, and a safe and sound financial sector.
To go back to the beginning—that is, to go back to 2008—money market funds were hemorrhaging cash. The Fed put guarantees in place and actually purchased on its own authority the corporate money-market obligations that keep our economy working. When those obligations began to run off, they replaced them with Treasury Notes. But when deflation started to hit, they initiated QE2, then QE3. And inflation is still moderate.
There are those who think the Fed’s monetary puts the economy on steroids. But speaking from experience, sometimes steroids are necessary to keep you alive.
Hit reply if you have any questions—I read them all!
Douglas R. Tengdin, CFA
Chief Investment Officer