Not Even Junk Will Fetch High Interest Rates Anymore

The Federal Reserve tries and tries and just can’t muster up some price-tag ripping price inflation. Blowing up its balance sheet from $900 billion to $4.5 trillion would have seemed to send us to Zimbabwe, but no, prices just won’t cooperate with the monetary masterminds toiling away in the Eccles Building.

MarketWatch’s Caroline Baum says Fed Chairs used to call these things conundrums. However, “Conundrums are a thing of the past. Nowadays, Fed Chairwoman Janet Yellen has an explanation — an excuse, really — for almost anything, from the atypical behavior of asset prices to inconsistencies in economic relationships,” writes Baum.

We’re told by President Trump that we’re at full employment, yet prices (the way the Fed measures them anyway) can’t get to the 2 percent increase level Yellen et. al. considers nirvana.

Baum writes that the Fed called price changes “transitory” then they were “definitional challenges” followed by “idiosyncratic factors,” such as “a precipitous drop in the price of wireless telecommunications services this year.”

It’s in all the economic textbooks: Nothing stops inflation like a drop in cell phone fees.

This summer, private economists are pointing to drops in hotel rates as depressing CPI and what not. However, Ms. Baum knows, “Inflation is a monetary phenomenon. When the Fed expands its balance sheet through asset purchases, it has no control over where that newly created money will go: toward the purchase of goods and services; or into financial assets, such as stocks, junk bonds or housing.”

She continues, “The Fed’s asset purchases lower risk-free Treasury rates, encouraging investors to reach for yield and buy riskier assets.

“Because asset prices aren’t part of official inflation measures, and because identifying an asset bubble is beyond their scope, central bankers eschew using monetary policy to respond to them.”