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In the outgoing week, the Fed once again raised the rate by 0.25%, despite the outbreak of the banking crisis, which, according to Powell, is tantamount to tightening monetary policy (MPT).
Powell assured the public that the Fed’s tough policy would continue for as long as it required to achieve the main goal of lowering inflation.
The Fed is simultaneously tightening and easing monetary policy
Fed assets
But, on the other hand, the Fed began to rapidly increase its balance sheet to save the banks. In two weeks, half of the efforts to reduce the balance sheet over the past year have been turned down the drain. During this time, the regulator increased its balance sheet by $400 billion.
The Fed is trying to sit on two chairs, simultaneously tightening the monetary policy (raising the rate) and easing the monetary policy (building up the balance sheet). This has never happened before in the history of regulators.
For the full picture, this is what the Fed’s balance sheet has looked like since 2008. Efforts to reduce it over the past year are nothing more than a drop in the ocean.
Fed balance sheet
Powell’s dilemma turns into a trilemma
In fact, Powell drives himself further and further not even into a dilemma, but into a trilemma:
1. Continue tight monetary policy and continue to raise the rate, which at some point will most likely lead to a collapse of the banking system and a recession in the United States.
2. Start easing monetary policy, which could lead to hyperinflation, which the Fed is now so afraid of. The same Fed that first caused inflation by printing and handing out a bunch of helicopter money during the pandemic, and then didn’t notice this inflation for a whole year.
3. Simultaneously pursue a hard and soft policy, followed by either a miraculous rescue (which is unlikely) or a complete collapse (hyperinflation + recession).
Warning signs
US Treasury Secretary Janet Yellen called an emergency private meeting of all US financial regulators
Last night, US Treasury Secretary Janet Yellen called an emergency private meeting of all US financial regulators to discuss the banking crisis.
Events like this don’t happen in quiet times. An increase in the level of anxiety of bank depositors may lead to consequences in the financial sector comparable to the banking crisis of 2007-2008.
We are in for interesting and volatile times.
Author: CryptoMan, analyst Freedman Сlub Crypto News
#Fed #playing #double #game
