Central Bankers And The Folly Of Paint-By-The-Numbers Monetary Policy

If you don’t think the global financial system is a powder keg fixing to blow, just consider the rank insanity emanating during the last two days from its monetary suzerains — the Fed and the ECB.

In the face of Y/Y inflation (CPI) of 2.7%, the Fed’s dot plot telegraphed that the fed funds target rate would not exceed that level until late 2019. Compared to the current inflation level, therefore, the implied money market rates would be negative in real terms for 11 straight years.

Indeed, during the last 17 months, the Y/Y inflation rate has exceeded the Fed’s ostensible 2.00% target 13 times. And yet Wednesday’s 25 bps raise to 1.88% left this so-called  monetary control valve still deeply under water in real terms.

It is no wonder that legendary investor Paul Tudor Jones shocked his CNBC h0sts early this week by saying that were he in charge of the Fed, interest rates would have been 150 basis points higher long ago. 



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