Powell Wants It Both Ways
Powell’s flaccid tightening policy has failed for two years because the Fed does not have a clear mission. The Fed wished to tighten, but when the going got tough for the banks in Q1 2023, the Fed and FDIC decided to bail out the banks by deploying the Bank Term Funding Program (BTFP) - a Fed operated bailout program which sowed more moral hazard into the system by taking banks off the hook for bad operating decisions made in 2020 and 2021. The Fed tried to have it both ways and is paying the price for not having a clear mission and not being willing to suffer any large bank casualties.
It is difficult enough for the Fed to try to steer the U.S. Economy given that in itself is an unnatural act (don’t interfere in the economy nor private markets!). However, the Fed only complicates its efforts when it takes opposing actions such as lifting the Fed Funds Rate while bailing out the banking sector. Talk about weak. Talk about a muddy mission. Talk about cowardice. End the feckless Fed.
