Authored by Michael Lebowitz via RealInvestmentAdvice.com,
“The problem with the war (Vietnam), as it often is, are the metrics. It is a situation where if you can’t count what’s important, you make what you can count important. So, in this particular case what you could count was dead enemy bodies.” – James Willbanks, Army Advisor, General of the Army George C. Marshall Chair of Military History for the Command and General Staff College
“If body count is the measure of success, then there’s a tendency to count every enemy body as a soldier. There’s a tendency to want to pile up dead bodies and perhaps to use less discriminate firepower than you otherwise might in order to achieve the result that you’re charged with trying to obtain.” – Lieutenant Colonel Robert Gard, Army and military assistant to Secretary of Defense Robert McNamara
Verbal Jenga
In recent press conferences, speeches, and testimony to Congress, Federal Reserve (Fed) Chairman Jerome Powell emphasized the Fed’s plan to be “patient” regarding further adjustments to interest rates. He also implied it is likely the Fed’s balance sheet reductions (QT) will be halted by the end of the year.
The support for this sudden shift in policy is obtuse considering his continuing glowing reports about the U.S. economy. For example, the labor market is “strong with the unemployment rate near historic lows and with strong wage gains. Inflation remains near our 2% goal. We continue to expect the American economy will grow at a solid pace in 2019…” The caveats, according to Powell, are that “growth has slowed in some major foreign economies” and “there is elevated uncertainty around several unresolved government policy issues including Brexit, ongoing trade negotiations and the effect from the partial government shutdown.”
Powell’s juggling of monetary policy and economic projections is a form of verbal Jenga with the blocks delicately stacked. Powell hopes to avoid saying anything to disrupt the structure without regard for veracity. To read more on our perception of his authenticity, read our latest article: Jerome Powell on 60 Minutes: Fact Check.
Jerome Powell’s policy rationale and politics is not entirely logical. Does it make sense to manage U.S. monetary policy to the self-inflicted BREXIT risks associated with the U.K., a country with a productive output about one-tenth that of the United States? Or with concerns about growth in China, which has never produced reliable public economic data? Or the residual effects of the U.S. government shutdown, which had an impact of less than 0.1% of GDP?
The Fed’s mandate, as legislated by Congress, is to manage the economy to full employment and stable inflation. Nothing about Powell’s recent comments justify policy change based on those guidelines. The change in policy is primarily speculative conjecture. It was also speculative conjecture that was behind Bernanke’s speech in January of 2008, where he confidently stated...