The Fed’s Bloodless Coup Gets “Acronymised”, As ANPR Meets CRAIMT, But Still Not As NIRP

Summary

• Based on the old monetary policy framework the Fed should have already gone NIRP by now.
• The Fed appears to be stepping back from its commitment to its new monetary policy framework in order for Congress to fill the gap with a fiscal stimulus.
• Congress will not fill the gap and the Fed will not step up as the presidential election approaches.
• Lael Brainard confirms that the Fed has repositioned the Community Reinvestment Actas the Inclusivity Mandate.
• The Fed and the next administration will have to overcompensate with fiscal and monetary policy stimulus to fill the gap that they have both created.

(Source: Cleveland Fed, caption by the Author)

When the Fed gets serious about something, the acronyms start to fly thick and fast. Unfortunately, the US central bank has not raised its guidance game so the benefits of its acronym game are being squandered. This author has already tried to raise his own acronym game, so now it’s game-on, so to speak.

(Source: the Author)

The last article criticized some Fed speakers for assuming that by stating their intentions, to let the economy run hotter, that they will actually achieve Fed’s new inflation and employment targets without having to show their capabilities in the form of monetary policy tools. In fairness, the behaviour of some parts of the bond market are currently implying that inflation is creeping to where the Fed has promised it will be. This is, however, no time for complacency from the Fed. Unfortunately, worse than appearing to be complacent, the Fed appears to be stepping back prematurely. 

This backstep may, however, be part of a much bigger plan to return later. Planned or otherwise, the Fed appears to be falling short of its new inflation make-up and maximized employment targets.

The Fed has been able to claw back further independence and flexibility, thereby ring-fencing itself, to some extent, from the current political maelstrom in America. The expectation, however, that the Fed will use this power and autonomy to lead from the front is being frustrated. Instead, the Fed appears to be sneaking out the back door and denying any responsibility for creating the current economic problems or having an obligation to solve them. The failure that is known as the Main Street Lending Programme (MLP), clearly, indicates that the Fed is complicit, to some extent, in the current economic problems. The Fed is, thus, ill-advised to disengage and remain aloof at this point in time.

(Source: Reuters, caption by the Author)

The palpable sense that the Fed is backsliding from its Jackson Hole commitments, to the new monetary policy framework, has been fostered by the most recent guidance. Immediately, post-Jackson Hole, the fear was that the Fed didn’t have any tools to go with its words. Now the additional worry is that there is not one single interpretation of its new monetary policy framework guidelines on inflation target overshooting. It is not just that the Fed may have no new tools. Now, the worry may also be that the Fed doesn’t know how to use them, even assuming that they exist.

(Source and caption by the Author)

Currently, the market is struggling to parse what the Fed is not saying. The last report called this kind of communication eliminating forward guidance.

Applying this new form of guidance, the Fed allegedly tells the market what it will do by nature of saying what it will not do. This has had the impact of forcing Mr Market to price discover the various things that the Fed will not do with a curious churning pattern which is assumed to be risk-off in general.

When all is said and done, some people may look back at a prescient graph from the Cleveland, Fed entitled “Federal Funds Rates Based on 7 Simple Rules”, that did not get much attention when it was published, because the main focus was on the Fed’s new monetary policy framework. Closer analysis of the graph shows that the Fed should have gone NIRP between Q2 and Q3 if 2020 and never gets back to Zero as far out as 2022.

Under most of the old Fed rules of thumb, we should have crashed through the Zero Bound by now. The Fed is therefore behind the curve in relation to its old rules. Since its new rules divine that it should let the economy run hot, to make-up for prior inflation and employment misses, it is hard for this author to accept that the old rules have been totally abandoned. The first conclusion, is, therefore, that the Fed should have gone NIRP already. The second conclusion is that the Fed is falling dangerously behind the curve again.

The Fed is being evasive, at a time when it is expected to be leading from the front as the less-than-adult elected US policymakers indulge in their ritual political blood sports. The Fed is giving the impression, that despite the evidence that the economic recovery is slowing, it doesn’t need to do anything more than promise to do something if things get worse.

The US central bank has also, rightly, signalled to elected policymakers that, should they desire a stronger economic recovery, they should borrow and spend more. In the event that borrowing and spending increases, the Fed has implied that it is also prepared to sustain these binges with low interest rates.

In effect, the Fed is talking and behaving as if hitting its desired new employment and inflation targets, in its new monetary policy framework, is a done deal. There is nothing like optimism to revive the animal spirits, but these sentiments are not fully echoed by either Mr Market or Mr Real Economy with any great conviction.

Coming into the most recent FOMC meeting, the Fed had carved out an interesting niche for itself. By cutting back global central bank swap lines it had tightened global US Dollar liquidity. In addition to this tightening, the Fed also appears to be stepping back from its prior commitments to hit its employment and inflation make-up targets.

Mr Market hoped that the Fed’s new autonomy would prompt the Fed to take greater ownership of the economic situation. He was encouraged to do so by the Fed’s pro-active guidance and targeted emergency support for the disadvantaged and those left behind. Leading up to the FOMC meeting, various Fed speakers had tried to disabuse him of his optimism by talking down expectations for delivery of tools or explanations. Unfortunately, when Chairman Powell spoke post-meeting announcement Mr Market’s realization and disappointment was palpable.

(Source: the Author)

The sense of disappointment was attenuated by a sense that the Fed has, also, abandoned its prior enthusiasm for the Inclusivity Mandate, that the central bank had been able to nudge Congress into accepting as part of the new monetary policy framework.

(Source and caption by the Author)

Previous reports have noted the growing dissatisfaction with the Fed’s Main Street Lending Programme (MLP). The Congressional oversight panel gave its administrator, Boston Fed president Eric Rosengren, a grilling and some recommendations about it. These recommendations had been taken on board, with the resulting broadening of access to the programme. This need for broadening, however, is not the problem.

The main problem for the MLP appears to be the onerous terms and conditions that the banks are offering to borrowers, as they transmit this emergency support package to the real economy. Recent analysis has shown that the T&C’s are so restrictive that only $1.4 billion of the $600 billion programme has actually been utilized. This qualifies not only as a failure, but also as a tightening of monetary policy.

Blame and finger-pointing will now occur as a result of the failure of the MLP. The balance of economic risks has, however, been tipped further to the downside as a result of its initial failure and the recent signs of deceleration of economic growth. The programme may have to be scrapped and replaced with something less onerous and more generous. In addition, the Fed may have to bring forward its timetable, for the further quantitative and qualitative easing, to overcompensate for the MLP failure. The hapless Eric Rosengren will now have to carry this albatross around his neck for the foreseeable future, with the accompanying loss of his own credibility and loss of power of his guidance.

The economic forecasts, accompanying the last FOMC meeting, already set a poor tone for guidance reception. The improved forecasts, although still not fundamentally strong, reduced the pressure on the Fed to act again swiftly. They were, presumably, fabricated with the objective of supporting a lower and easier for longer profile that is commensurate with the new monetary policy framework.

The FOMC statement itself was evasive. The committee saw an improving economic situation that, remains uncertain and was prepared to support if it deteriorated. Bond-buying will at least continue at the same pace.

Chairman Powell’s post-meeting speech, then, stumbled through a litany of vaguely correlated employment and inflation indicators that the Fed may or may not subjectively use to decide if it has hit its new monetary policy framework bogeys or not. This rambling obfuscation was, perhaps, the most underwhelming point of what may well be one of the most underwhelming Fed Chairman performances. It was apparent that the conceptualization and process, belying the new monetary policy framework, is subjective and lacking in any intellectual rigour or discipline. The Fed has used its newly garnered autonomy to become even more arcane and obscure when the heightened level of risk demands that it be more transparent with its delivery. Chairman Powell calls this lack of rules “judgemental assessment”. If he believes that this, luxury of flexibility and hindsight, will improve his credibility he is deluding himself.

In his post-meeting speech, Chairman Powell also moved to anticipate being blamed for the failure of the MLP. He acknowledged that it is not working as expected and promised to revisit it with a view to remedial action. This admission, however, was disingenuous because the FOMC statement had already hinted that the Fed is walking back from its commitment to, Inclusivity for, those left behind and/or excluded. If the Fed is walking back, from Inclusivity in general, why will it be in any hurry to amend the MLP?

Powell’s statement was very clear that the Fed, rightly, expects elected policymakers to enact a fiscal stimulus package that targets the needy. Presumably, this is why the Fed is feigning that it is stepping back. Whilst the Powell is right to make this statement, he is disingenuous to first carve out an Inclusivity Mandate and then say that it is not his responsibility to manage it. Carving out a new Inclusivity Mandate and then handing it straight back to a partisan Congress is a recipe for disaster. The failings of the MLP have, clearly, informed the Fed of where the limits of its Inclusiveness lie. These limits are so tight, that only a fiscal stimulus will do the job in moving the economic needle. By stepping back and demanding more fiscal stimulus, the Fed has acknowledged that it has written stimulus cheques that it cannot honour. This implies that the MLP is also one of those cheques.

(Source and caption by the Author)

The FOMC’s actions, statement and Powell’s words were, thus, an implicit admission of failure on the MLP and the Inclusivity Mandate. They were also a promise to monetize as much of the required alternative fiscal stimulus that Congress wishes to pass, however. Without this promise, yields would rise, as the bonds financing the fiscal stimulus failed to find willing investors. As noted in the last report, the Fed is all-about upholding the US debt mountain and not about the Inclusive Employment mandate. This was made abundantly clear at this latest FOMC meeting.

The Fed has, thus, appeared to abandon its own Inclusivity Mandate temporarily until the Inclusivity Fiscal Deficit is legislated by Congress. Then it will step back in. This author suspects that the Fed smells policy failure that it is trying to distance itself from by as much as possible. As we shall see, Lael Brainard is already choreographing the stepping back in when success requires many fathers and mothers.

An apparent growing sense of remorse, about its stepping back, was evident in the guidance of the more inclusively inclined Fed presidents.

(Source: Minneapolis Fed, caption by the Author)

Minnesota Fed president Neel Kashkari provided a classic example of this central bankers’ remorse. Initially, he endorsed his dissatisfaction with his colleagues’ inertia, by referring observers back to his dissent at the last FOMC meeting. He made it clear that he was very much in favour of showing stronger intentions and capabilities to overshoot the inflation and employment targets.

Kashkari even went as far as humanly possible, for a Fed president, to openly criticise his colleagues; by speculating that their incongruous guidance and inert process risks both a premature normalization and tightening of monetary policy. This dissent, in essence, supports the Cleveland Fed’s graphs above and the author’s conclusion that the Fed is dangerously falling behind the curve.

Having registered his dissent, as a virtual “I told you so”, for the moment in the future when Mr Market punishes the Fed for its inertia, Kashkari moved on to further distinguish himself as one of the good guys.

Now that it is also looking less likely, that his call for another national lockdown will happen, of the kind he called for, Kashkari is on the hunt for a new mission to reset his halo. It would seem that he has alighted upon the macro-stability implications of the Fed’s new monetary policy framework. Clearly, a tolerance for growth and inflation overshooting infers a tolerance for greater financial instability by the Fed. Kashkari’s new crusade is to prevent the banks from enjoying the free ride on the Fed’s tolerance.

(Source: Minneapolis Fed, caption by the Author)

Kashkari is also trying a new potential macro-stability tool of investor activism. He recently addressed an audience of financial institutions, who collectively hold a large stake in the US banks, and beseeched them to demand higher bank capital adequacy levels. His speech comes at a time when it is rumoured that the Fed is revisiting the issues of stress tests and dividend pay-out caps, so there is no smoke without a fire.

Kashkari’s ideas are all well and good, but presumably, these same institutional investors in bank shares will want a free ride from the Fed also. Said free ride, is leveraged returns on equity of their portfolios. No doubt, the banks and their investors will argue, with great conviction, that they require lower capital adequacy ratios to maintain the credit creation process in these pandemic-constrained times. They may even go as far as to disingenuously manipulate Atlanta Fed president Raphael Bostic’s personal crusade.

The banks have been guilty of prejudicial and predatorial lending practices to African Americans. Bostic has taken righteous issue with this. Bostic’s remorse for the Fed’s, inability to redress the inequity was, however, framed with hope. He now hopes that the issue of racial inequality has been taken onboard by elected policymakers. Based on this assumption, he hopes that policy will be targeted at closing the gap. His implied view, of the Fed’s place in this process, is that it will monetize all future fiscal deficits including those that are used to target racial disparities.

The Fed, thus, steps back, after its embrace of Inclusivity, in order to indirectly sustain the process that then gets legislated by Congress. Meanwhile, the banks will argue that they need lower capital adequacy standards to lend to African Americans; and their investors will say that they would overweight the sector if it lent more to the same demographic.

On the relatively more mundane issue, of make-up towards and then overshooting the inflation target, Bostic simply repeated that he is more concerned with the rate of increase of inflation than the outright number. Since the target is not a ceiling and the Fed is still historically way behind getting close, should the rate of inflation slow or even fall Bostic would, by default, be obliged to consider further easing in addition to waiting even longer to normalize.

(Source: Federal Reserve Board, caption by the Author)

Bostic and his initiative, in support of the Fed’s Inclusivity Mandate, have not been abandoned, however. Far from it. They have in fact been “Acronymised”, the way that the Fed does with brio when it seizes the initiative. Fed Governor Lael Brainard laid out the Acronymising strategy, in detail, in a speech that was peppered with other acronyms, thereby projecting urgency and gravitas.

(Source and caption by the Author)

Readers should remember the article describing the Community Reinvestment Act (CRA) as the Fed’s new potential Inclusivity Mandate tool. Fed Governor Brainard and a few good acronyms recently confirmed this shadow mission. Clearly evincing the Fed’s newly acquired autonomy, sans accountability, she gleefully informed her audience that the Federal Reserve Board has now replaced Congress for the purposes of legislating the Inclusivity Mandate into life through the arcane process of “an advance notice of proposed rulemaking (ANPR)” that will allegedly “strengthen, clarify, and tailor the CRA regulation to better meet the law's core purpose”.

(Source and caption by the Author)

In recognition, of the strongest traditions of the Fed, this author had already created his own acronym, for Brainard’s latterly revealed elaborate process, which he called the Community Reinvestment Act Inclusivity Mandate Tool (CRAIMT). The tool and acronym portend a period of economic softness, that the Fed has anticipated, as the pandemic dead-cat bounce reaches its apogee.

New York Fed president John Williams, whilst ostensibly showing solidarity and support for CRAIMT, revealed some slight hesitancy and circumspection about going all-in on it with the Fed’s balance sheet at this stage. Addressing the Congressional Black Caucus, Williams requested their support in nudging the formal adoption of the Inclusivity Mandate and CRAIMT through the legislative process in the form of bills.

(Source and corruption of Genesis album by the Author)

As noted in the last report, the wily-old hybrid Foxhog Chairman Powell, seemingly, knows many things and one big thing in relation to the economy and CRAIMT. If the CRAIMT is part of a “Bloodless Coup”, as this author speculates, then, the trigger has just been pulled on it by Brainard.

Like the dissenting Kashkari, Dallas Fed president Robert Kaplan also qualified his dissent. He would like to see a credible commitment to walk back, the vigour of overshooting targets if the economy is stronger than anticipated. He is most concerned that Mr Market will get carried away to the upside, in discounting the outcome of this commitment to overshooting, thereby exacerbating financial stability risks. In short, Kaplan is making a valuation call on risk assets and would like Mr Market to do the same. Kaplan’s market manipulation strongly resonates with that being deployed by Fed Chair Powell. This micromanagement and its losers and winners will be discussed later.

(Source: quotesgram.com, caption by the Author)

Suffice it to say, for now, that there is an established pattern of the Fed’s guidance being aimed at asset price levels and not its mandate parameters. This confirms the suspicion that the Fed’s real mandate is to control asset prices and not to follow its new monetary policy framework in relation to employment and inflation targets.

Having said all that, Kaplan still thinks that the economy requires two-and-a-half to three-years of remedial support to hit these targets. Kaplan’s zeal, for flexible nuanced guidance finesse, may simply confuse his audience and undermine his credibility in practice. Furthermore, it makes it appear that the Fed has no clue, let alone consensus, on how to interpret its new monetary policy framework. If it has no clue, how and why on earth did it make the framework change in the first place? The answer may be that it simply wishes to appear to be doing something for the real economy, when in fact it is more concerned about doing something for asset prices.

St. Louis Fed president James Bullard could only add to the rising sense of uncertainty rather than provide clarity. He speculates that now since fiscal and monetary policy are both loose, one might see inflation picking up. This is presumably what the Fed wants but, the way Bullard presented the scenario, it appeared that the Fed would be displeased and disposed to normalization in response. He then invited further controversy by directly conflicting with the guidance of his Chairman on the same day.

Whilst Chairman Powell was reprising his long and winding road to recovery theme for Congress, which is conditional upon more fiscal stimulus, Bullard dissonantly guided that the economy may have enough momentum to avoid the need for this stimulus. Given that Powell’s guidance was for Congress, during a period in which there was still partisan fighting over a new fiscal stimulus, Bullard’s dissonance verged on deliberate sabotage. He tried to recover the Fed’s fading credibility, by noting that the minority two dissenting votes, at the last FOMC meeting, suggest that current monetary policy settings are about right. This throwaway comment did not, however, exonerate him from his inflammatory comments on fiscal policy settings.

Bullard’s view, on the need for more fiscal stimulus, was directly contrasted by that of Chicago Fed president Charles Evans. Evans’ whole baseline scenario, on which he sets his own monetary policy compass, is entirely predicated on the assumption that there will be another fiscal stimulus.

Whilst emphatic, about the need for more fiscal stimulus, Evans was, unfortunately, imprecise on how he reads the new monetary policy framework tea-leaves. It is clear that he just hasn’t got his head around it yet. Worryingly, he stated that the clock on making up for inflation and employment misses hasn’t even started yet. He then compounded his confusing communication, by saying it was entirely possible that the Fed starts normalizing way in advance of it hitting the high-water marks on its overshooting. Evans’s words simply added to the growing sense of unease that the new monetary policy framework was ill-conceived and totally lacking in consensus on how to execute.

In a following speech, Evans then tried to correct his chaotic appearance, by boldly asserting that he has no fear of inflation, reaching 2.5% and above, even though the Fed doesn’t need to currently buy more bonds to get there. This comment only served to illustrate his equivocal state of confusion.

After the Evans meltdown, Fed Vice Chair Richard Clarida swiftly interjected to restore some semblance of order. He was emphatic that there will be no increase in interest rates at least until headline Core PCE prints 2%.

Clarida’s interjection was supported by a further interjection from Boston Fed president Eric Rosengren. Rosengren says that the economy is weaker than those, including his Fed colleagues, think and say. This incipient weakness will be exacerbated by the likelihood that people get sicker in the winter months. To his credit, for resilience, he is still claiming that the Main Street Lending Programme he overseas is working and can still move the needle, on Main Street, if the banks embrace it. Further fiscal stimulus is also a pre-requisite, for a full economic recovery, in his view. Faced with all these headwinds and uncertainty, he believes that monetary policy must remain expansive.

Fed Governor Randal Quarles seemed to have just about the right tone of guidance that Chairman Powell was seeking from his colleagues. Quarles believes that “vigilance” and “outcomes-based forward guidance” are required currently, in a US economy that is just starting to slow its pace of recovery. Along with these two attributes, the Fed should also be more tolerant of any labour-market tightness and inflation overshooting the target.

It is becoming apparent that the Fed should have reformed its guidance framework, along with its monetary policy framework, but didn’t. This failure is already coming back to haunt the US central bank.

(Source: BIS, caption by the Author)

Chairman Powell had no time of leisure to remove the dagger that James Bullard had stuck into his back about the lack of requirement for a further fiscal stimulus. Powell needed all his faculties, at his disposal, to parry the much larger weapons that Congress could thrust towards him. His Congressional testimony was also a plethora of acronyms. On this occasion, the sheer number of acronyms deployed was used, by the Fed Chairman, to convey the magnitude of the various Federal Reserve emergency stimulus programmes that have been deployed. In terms of the sheer number of acronyms, this has been a success. In terms of uptake, of some of the programmes behind the acronyms, the track record to date is less than successful.

Powell did his best to convey that the Fed is responding to poor MLP uptake by changing the terms and broadening the scope of access to the programmes. His main crutch to fall back on is that all these programmes will not be effective unless there is a combined fiscal stimulus from Congress to create the foundation of support underlying economic sentiment. The Federal  Government should be the one stepping into the void, with real spending, not the Fed with emergency lending.

In response to, or in spite of, Powell’s entreating, policymakers would only pass an emergency stop-gap funding bill to keep the government working through the presidential election campaign until December 11^th. This is clearly not what Powell wanted, so the balance of risks lurches further to the downside.

Unfortunately, this close to the election, the Feds hands are tied as it doesn’t wish to appear to be taking a political stand by easing again. The balance of risks is, thus, lurching even further to the downside and the Fed is falling even further behind its new monetary policy framework targets.

If the Fed then waits for the new administration to, get up and running in order to, pass more stimulus bills the situation will get out of control. Furthermore, given the ugly partisan situation, it is highly likely that any new spending plan will be obstructed unless the election creates a clear winner in both houses. If President Trump is re-elected, this author believes there is also the risk that the impeachment process is swiftly triggered. There is, thus, a huge void in economic leadership, opening up, that will need to be overcompensated for with both fiscal and monetary policy in 2021.

(Source: Federal Reserve Board, caption by the Author)

One can see where Kaplan and Bullard are coming from, even if this upsets Chairman Powell, based on the latest household net worth data that the Fed has published. For those households that are asset rich, it is the best of times and no further monetary of fiscal stimulus is required. These folks need to get out and spend. Indeed, if they just keep buying assets they are creating the unstable financial bubble that Kaplan feels will take them and the rest of the US economy down.

On the other hand, for those folks that are asset-poor, it is the worst of times. They need jobs and further fiscal support. The asset-rich folks may not be so keen about the prospects of higher taxes and wealth transfer to the poor folks and this is what President Trump hopes to exploit at the polls.

Faced with this decay in the wealth recycling mechanism in the US economy and the political division that it creates, the Fed has gone for its Inclusivity Mandate to redress the balance. It is, thus, playing politics and choosing winners and losers. It must, therefore, tread carefully. This careful treading now appears as the Fed stepping back. The more carefully it treads, the more those who need the help will fall behind.

(Source: Strategist, caption and editing by the Author)

In past articles, this author has noted how the conflation of monetary policy and asset management is occurring in the US capital markets. The result of this conflation is an implicit outsourcing of monetary policy to the asset managers, and thereby the capture of monetary policy and the Fed by the same outsourced cohort. This author has called the larger systemic asset managers the “Masters of the Asset Class Universe”.

Kashkari’s latest capital adequacy crusade highlights how far the conflation of monetary policy and asset management and the corresponding capture has reached. At this new point, it is reasonable to say that the Fed has been taken prisoner by the banks and their investors. If the Fed was strong, it would simply make new tighter capital adequacy rules and/or ask Congress to legislate them. Evidently, the Fed is not strong; so now the likes of Kashkari must lobby and beg for his desired outcome.

The Fed’s peremptory embrace of Inclusivity, in its new monetary policy framework, has, thus, led to a further crushing embrace of monetary policy by the financial services sector. The financial services sector will, however, always serve itself to the exclusion of those whom the Fed wishes to include. The financial services sector is all about exclusivity, so the Fed has no chance of being inclusive. This is why, fundamentally, the Fed’s Main Street Lending Programme has failed to deliver. The agency of the financial services sector is connected to the capital markets exclusively. The capital markets have an increasingly tenuous link, to the real economy, as interest rates go lower and/or negative and the size of the Fed’s balance sheet balloons.

(Source: New York Fed, caption by the Author)

If the Fed speakers appeared uncertain, or unable, to explain their understanding of the new monetary policy framework, then, their instructions to the New York Fed and hence to the outsourcing firms who execute monetary policy were clear. This instruction listed the exact tools and the amounts of said tools to be deployed. It is more of the same old balance sheet expansion, but what else is to be expected, given the Fed’s reluctance to introduce negative interest rates, despite seven old Fed indicators saying that they are needed right now? The Fed is behind the NIRP curve, but it is still holding to the QE curve envelope of the new monetary policy framework.

(Source: Economist, caption by the Author)

The New York Fed was instructed to increase its purchases of Treasuries and mortgage backend agency securities. The Fed’s actions are thus signalling that it is easing further in order to comply with its new framework. The fall in yields occasioned with this buying, however, informed Mr Market that the Fed is doing nothing and thereby abandoning the economy to the ravages of a second pandemic wave.

(Source and caption by the Author)

With hindsight, Chairman Powell will most likely conclude that he should have reformed guidance in line with the new monetary policy framework. The Fed is easing, yet Mr Market thinks that it is tightening. Ostensibly, for Powell, his team’s garbled communications now mean that only NIRP will be effective. This may be the endgame that Powell wants, but it comes at great cost, so one hopes that it is worth it.

All the New York Fed’s latest outsourced bond-buying will count for nought in the real economy. It will, however, deliver more profits and fees for the outsourcing firms. When the Fed, then, goes negative this gift to the outsourcing firms will go parabolic.

Sadly, the enrichment of the monetary policy subcontracting firms appears to be a necessary evil and externality cost that Chairman Powell is willing to accept. If only the Chairman could show the same degree of ruthless control, over the “Masters”, that he has shown with skittish Mr Market and his Robin Hoods. Someone has to do the dirty job of the price discovery that Chairman Powell needs to deliver NIRP though.

The Fed Chairman has allowed Mr. Market et al to misread the jumbled Fed guidance, as a risk-off signal, thereby triggering the volatility that he needs to reward the outsourcing firms with more QE orders and eventually NIRP. Here, on the Zero Lower Bound, Chairman Powell needs his useful idiots like Mr. Market to paint the tape the red colour that he requires to expand monetary policy. Never interrupt your opponent when he is making a mistake, as Napoleon said.

(Source the Author)

Although Chairman Powell needs them too, however, nobody could accuse the “Masters of the Asset Class Universe”, to whom the Fed subcontracts monetary policy, of being useful idiots though. Far from it.

So, the scoring is mixed, but on the whole successful, for Chairman Powell’s advance to contact with more QE and then NIRP. On the subject of the repositioning of the Inclusivity Mandate, within the Community Reinvestment Act, the jury is out with further acronyms to follow.