The Fed…don’t Doubt Me!

July 2024

Recently, I’ve been interviewed on several radio shows where hosts have been asking about Jay Powell and the Federal Reserve’s stance on inflation. They were eager to point out that I had predicted the Fed wouldn’t wait for inflation to drop to 2% before lowering rates. My response? A facepalm and a simple, “Yeah, don’t doubt me.”

Every year, my kids ask what I want for Father’s Day, and I always tell them the same thing: a shirt that says, “Don’t doubt me.” It’s not that I’m claiming to be a guru or a genius. I just pay attention to the writing on the wall, and you can too if you tune out all the noise.

Of course, the Fed was going to lower rates before hitting the 2% inflation target. Why? Because they can’t get it down to 2%. It’s simply not possible with our current spending levels. The Federal Reserve is stuck. They can’t control everything that affects inflation, like supply chain issues or events like bird flu outbreaks. Remember when they had to kill all the chickens and prices went up? What was the Fed going to do—put masks on chickens?

Inflation is driven by many factors. The Phillips curve suggests we need higher unemployment and lower growth to combat inflation, but that’s overly simplistic. The underlying economy and inflation trends are complex. Real changes require regulatory adjustments, reduced government spending, and lower energy costs. The idea that the Fed could simply bring inflation down to 2% was always absurd, just like the notion that inflation was “transitory.”

I often wonder about the Fed’s motives. With 400 economists, most of whom are left-leaning, it’s hard to believe they didn’t see the obvious. Sometimes it seems like they make statements to create a self-fulfilling prophecy, hoping people will believe it. But, as we saw, inflation wasn’t transitory despite their assurances.

Here’s my advice: trust your own observations. You can be your own economist. For example, the government recently reported that retail sales weren’t as bad as expected. But if you look at the earnings reports from major retailers, they tell a different story. Retailers themselves are saying sales are down. So, who do you believe? Your own eyes or a government report adjusted for seasonality and other factors?

You don’t need to be a genius to see the truth. Just observe the world around you. So, yes, I called it, but it doesn’t make me special. It just means I’m paying attention.

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