Commentary: Fed up with The Fed
By Carl D. Rafoth
YOUNGSTOWN, Ohio – The Federal Reserve (was established by Congress in 1913 to provide the nation with a safer, more flexible and more stable monetary and financial system to prevent the U.S. economy from significant swings upward or downward by manipulating the interbank interest rates.
On multiple occasions since then, market forces prevailed in spite of the Federal Reserve’s seven governors in 12 cities. Jerome Powell is the current chairman. Fed employees total approximately 3,000 in number and it refuses to disclose almost all of their salaries. Six of the 369 disclosed earn at least $286,700 yearly.
In spite of the Fed’s manipulation, the economy (or because of it) huge bubbles and bursts to our economy occurred including the Great Depression and more recent Great Recession. Inflation is now at a 40-year-high and interest rates unnecessarily rising due to The Fed raising interbank rates. Consumer debt and business borrowings (especially small businesses) now pay significantly higher rates as a result.
The generally accepted current goals of The Fed are to control inflation and maintain low unemployment. Again, market and most recently political forces prevailed, and Jerome Powell still has his job!
Food and energy prices are absent from the Consumer Price Index but should be included. We all use food and energy all the time. If included, the inflation rates would be more accurately reflected – much higher,
Rates of unemployment are just one component of the job market. There is a blurring of distinction between those truly looking for work and those employable who are not working. Here now politics plays a more important role than the games The Fed plays. Labor participation rate is very low. As the old cliché states: “Why buy the cow when the milk is free”?
Incentives to stay home from a job are two-fold:
1. Lax unemployment compensation qualifications. The owner of a grocery chain franchise told me he can’t get enough workers because the potential hires don’t even have to show proof of effort to become hired.
2. The ever benevolent government subsidizes the employer with money because their business suffers from lack of workers, or because they retained workers! I cannot figure this one out.
As Margaret Thatcher famously stated: “Sooner or later, socialism runs out of other peoples’ money.” If there is any money left.
The U.S. economy and larger world economics generate billions of transactions daily. Walmart, the largest private employer, alone generates 36,000 transactions every hour of every day.
It is impossible for The Fed or any other entity to direct the economy by raising (or lowering) interest rates. When The Fed does, it is historically late in doing so, and the damage is already done. The market economy is “smarter” than The Fed, the ever evolving “virus” is changing faster than the politicized FDA, CDC and world’s most prominent epidemiologist can change his mind.
We need sound monetary policy to whip inflation. Congress should amend the Federal Reserve Act to force the central bank to hit a specific target – one not subject to revision by The Fed.
Central bankers (The Fed) somehow get the idea that their supervisory responsibilities included climate change (fka global warming. fka “the weather”). Congress should strike down this brazenly elastic interpretation
When President Coolidge faced an economic crisis he stood aside and the market corrected itself – it eventually does if left alone.
The author, Carl D. Rafoth is an attorney.
Published by The Business Journal, Youngstown, Ohio.