December 14, 2022
The Fed sent a message yesterday, that they were quite willing to maintain a chokehold on the economy.
With the same hubris that they committed to the "inflation is transitory" messaging of last year, which inflated asset bubbles, they are now doing in reverse.
Still, as I said yesterday, "we know that the Fed's projections have a history of being very wrong (AND their projections can, and do change, with no apologies)."
The examples of how wrong they can be are not hard to uncover: After finally acknowledging the level and persistence of inflation late last year, at the December Fed meeting one year ago, they projected that the Fed Funds rate would go to less than 1% in 2022.
It's now 4.4%.
And at the December Fed meeting one year ago, they projected that the Fed Funds rate would go to just 1.6% in 2023. Now they project 5.1%.
The formula for inflation last year was textbook. Money supply had grown by almost 40% in two years. That's about ten years worth of money supply growth, in two years. Meanwhile we had disruption of supply. Too much money chasing too few goods = inflation. If you didn't believe the economic theory, it was clearly reflected in the data.
Fast forward a year, and we have declining money supply (since March).
In fact, the six-month change in money supply is declining at the fastest rate on record, going back over 60 years of history. Moreover, a negative six-month change in money supply is highly unusual. It's only happened twice prior to this recent episode ('92 and '93). The Fed was cutting rates in 1992.