Federal Reserve B.S.

When I learned to drive, I was taught two techniques help stop a car in a hurry: down shifting and pumping the brakes.  It required an understanding of when to use the two together and also the finesse to pull it off efficiently.  If I’m being honest, I don’t know if I could do it anymore.  It’s been decades since I’ve owned a car with a manual transmission plus all the cars I’ve owned since I got married have been equipped with anti-lock brakes.

Atlas doesn’t have a strong opinion about transmission types but is in the camp of anti-lock brakes.  These are a sophisticated system and virtually ubiquitous (old-car enthusiasts with stick shifts being one exception), and it’s a good thing too.  Wheels which remain locked while trying to stop tend to skid, giving up traction and the ability to steer with intention.  Instead, anti-lock brakes make small and quick adjustments which offer immediate help when trying to safely stop a car in a dangerous circumstance. 

America’s central bank doesn’t have the same benefit of technology when it comes to fighting inflation.  Instead, the Federal Reserve’s Br(e)aking System remains rudimentary even with the new policies created since the Great Financial Crisis over a decade ago.  Instead, their apparatus is slow to react and slower to make noticeable changes in trajectories because impacts of monetary policies have occurred with considerable lag in the past.  The effects of recent and subsequent rate hikes along with the coming quantitative tightening may not be evident for several quarters.  Instead, the economy’s current trend is likely to be the biggest influence on America’s near-term economic outcomes.  It appears to be slowing already.  This might lead to another danger similar to braking: overcorrecting. 

It isn’t that they aren’t trying.  Later this month they’ll increase their efforts to pump the brakes and downshift even further.  Chair Jerome Powell and company don’t want to careen the economy into a ditch and hopefully the won’t, but they are staring at an inflationary hazard, one we are all experiencing.  Interestingly, the economy is already showing signs of slowing, and their actions might just exacerbate what was going to happen anyway.  Probabilities of recession seem to be building, and as they brake to avoid one pitfall, America’s economy may just collide with another.