I wrote the following article in June just after the Federal Reserve announced that it would not raise interest rates. It wouldn’t been more timely, if I’d published then. But, it was lost in the piles. However, even though the article is late, there’s still an insight to be gained from reading it.
In June, the Federal Reserve declined to raise interest rates. In response, Yahoo Finance reported:
“The Federal Reserve pushed back its plans to raise its benchmark short-term interest rate, a widely expected move following a series of mixed US economic reports.
“After a two-day policy meeting, the Federal Open Market Committee unanimously voted to hold the federal funds rate between 0.25% and 0.50%, citing weakness in recent employment data.”
That “weakness” was a surprising jobs report that, although economists had generally expected about 162,000 new jobs to be created in May, only 38,000 jobs were actually created—”the lowest level in six years.”
“Although the unemployment rate has declined, job gains have diminished,” the central bank wrote in its statement.
Does it make sense that the “unemployment rate declined” at the same time that the number of “jobs gains diminished” from an expected 162,000 to just 38,000? I won’t say that’s impossible, but it seems odd that, even though expected “job gains” fell by 76% (from 162,000 to an actual 38,000), the unemployment rate nevertheless continued to decline.
If the unemployment rate really declined, it sounds more like 124,000 people (who were expected to get new jobs but didn’t) simply “disappeared” from the unemployment rolls. They didn’t get jobs. Instead, they were simply deleted from unemployment calculations.
Result? Unemployment rates fell mathematically, but not actually.
“For the second time, the Fed withheld mention of global economic risks and provided no assessment of the balance of risks, implying that officials are still keeping their options open for an interest rate hike this summer . . . .”
So the Fed is “keeping their options open,” hmm?
Well, it’s important to have “options” because, so long as one has “options,” one has power—the power to choose between option A and option B. When one has no options, he is, by definition, powerless.
Therefore, is the Federal Reserve really “keeping its options open” for raising interest rates later this summer? Or is the Fed trying to keep the “illusion” of “having options”–and thereby maintain the illusion of still having enough power to control the economy?
Suppose the Fed was truly becoming powerless. Even if that were true, the Fed couldn’t publicly admit it was powerless to remedy the ailing U.S. and global economies. The Fed couldn’t admit that there’s no chance, no option, to raise interest rates this summer or even this year.
To admit that the Fed has no “options” is to admit that the Fed is paralyzed, impotent, and powerless to cause meaningful change in the economy.
If the Fed were powerless, the Fed would be useless and irrelevant.
We’re told that in our debt-based monetary system, the value of the fiat dollar depends on public confidence. Is that confidence inspired or diminished by a Federal Reserve that has no options and therefore no power? Will the fiat dollar die if the Fed admits or implies that it has no options?
• More, when the Fed claims to be “keeping its options open,” what are we talking about? Raising interest rate to 7%, 5%, or even 3%?
No. We’re talking about the option/power to raise interest rates by another one-quarter of one percent—a lousy 0.25%.
Yes, to raise or not to raise the interest rate by 0.25% may be an “option,” but if it is, it’s like having the “option” to blink your eyes or wiggle your ears. Technically, that might be an “option,” but it’s also a triviality and hardly evidence of power. Insofar as 0.25% is a triviality and the Fed couldn’t even raise interest rates by that trivial amount on June 15th, doesn’t that imply that the Fed’s power has also been trivialized to the point of being almost non-existent?
If the Fed were still truly powerful, it should be able to walk in the door, holler “Listen up, you idiots!” and arbitrarily raise interest rates by several percent. But the Fed can’t even raise interest rates by just 0.25%. That inability does not inspire confidence. That inability implies that the Fed may now exist less as a “great power’ than as a fading illusion.
• Yes, the Fed still claims to have “options,” but that claim may be unwarranted and intended primarily to inspire false confidence in the Fed’s power. The Fed is figuratively saying, “Ohh, we could raise interest rates if we wanted to—but we choose not to.” However, I don’t think that’s true. I don’t think the Fed really had any choice as to whether it could raise interest rates on June 15th. That implies that the Fed has no power. The Fed’s inability to raise interest rates by a lousy 0.25% is implicit evidence that the Fed doesn’t really have a significant option and therefore doesn’t really have any significant power.
This suggests that the Federal Reserve may have lost so much of its former power that it’s now nearing the end of its usefulness and life-expectancy. The “emperor” is not merely seen to be nude—he’s also seen to be a frail, weezing old man on life support who may not last much longer.