tl;dr: Is the Fed on the path to becoming a PR outlet more than a “trusted” intermediary?

I’m feeling a bit down today, even though it is Bastille Day in France.

The reason I am feeling down is because I have lost more confidence in the Federal Reserve.

I understand why they did what they had to do in March 2020, by printing so much money quickly. Otherwise, markets would have completely locked up.

However, The Fed Is Underestimating the Risk of Inflation and I can’t figure out if it’s because they know inflation is here (and coming) and are lying to people deliberately, which is bad, OR because they generally don’t think it’s coming, which, imho, is also bad.

Now, I’m not a professional economist. I haven’t won a Nobel Prize (for econ, of course, I have a few others), but “June 2019 to June 2020 saw the highest increase in the M3 money aggregate since 1943, at 26%,” which led to “in year leading to March 1947 consumer prices climbed by more than 20%.”

I mean, what did they think would happen when all that money was put into the stock market? People felt richer. They took some of their gains and started buying things (well, the rich people who could afford to, that is) and well, when the supply of money is infinite and the cost of money is basically zero while physical items like lumber and laborers to build a house are finite, it’s not hard to figure out what happens from there.

Meanwhile, the “little guy” gets really, really screwed, as his relative purchasing power continues to decline.

And it’s continuing, as retail investors (who have now figured out that inflation is real) are looking to beat it by pouring money back into the stock market...so the cycle continues. The rich get even richer. And key supplies will become even more constrained, or at least more expensive.

Which, I suspect, will lead to more money printing (in the form of handouts/entitlements) as well as a Fed that is terrified of actually raising rates lest they “spook” the markets.

What I believe we are seeing is an increasing politicization of the Fed (notice how it has changed its mission to include social outcomes) and a lack of accountability.

For example, the markets hang on every word from the Fed reports/projections, but how often do we go back and look to see if they were right?

“The Fed has been dismissive of concern, describing the upturn in inflation as “transitory.” But it can’t deny that the forecasts it made in the spring and summer of 2020 missed the mark by a wide margin.”

source

As I wrote in Trusted Oracles and Bulletproof Reputations on March 27, 2020

“if the book Superforecasters taught me anything, it’s that

“without a concrete measure and a concrete date for assessing accuracy, a prediction is totally worthless…and it’s not a prediction.”

paraphrasing idea from Superforecasters

Well, we have concrete predictions, but how often do we hold the Fed accountable?

And what if they are continually wrong?