The Federal Reserve Bank is NOT a US Governmental body. It is privately owned and given some fundamental monetary control by Congress. This system implemented in 1913 by a group an elite bankers headed by JP Morgan was established on Jekyll Island in a secret meeting. Nice start to a bad idea. You can a read up here https://www.federalreservehistory.org/essays/jekyll-island-conference
Over the last many decades, the Fed as it is called, has made some good sized blunders in setting interest rates high or low for too ling and adversely effecting what should be left as natural business cycle occurrences. A rather famous Fed Chairman, Paul Volcker, quashed 1908s inflation by raising interest rates to stratospheric levels. The Fed funds rate, which is the rate banks charge each other for overnight loans, hit 20 percent in 1980, and 21 percent in June 1981. The cause was an inflationary spiral brought on by rising oil prices, government overspending and rising wages. Sound familiar.
Of course, Capital is the life's blood of an economy and is you want a big slow down, just raise rates. The current fed is at 5-5.25% which seems much lower but considering the National debt which s now and will continually refinanced it is worse. The Fed is on a pause or skip for June but may raise 25 basis points in July. i suspect they will. The seeming promise to remain high for longer also appears baked into the equation so even if pausing for longer periods, the rate will remain high and thus discouragement economic growth and create a liquidity problem . That simply means it will be hard to borrow and banks will have a tough time and likely lose depositors to Money Markets and/or T Bills etc.
As a student of history, this is not surprising to me. The Fed has a fairly long history of doing the wrong ting and has played a role in several recessions and the Great Depression. Manipulation of interest rates coupled with enormous almost unimaginable money supply goof ups, has now set us u for trouble. A recession is likely and deeper than most believe. The hearsay about a soft landing or no landing is faulty. Working off the money printing begun during Covid and continued beyond by massive spending will take years to reign in and I have serious doubts about whether or not the Fed can actually stay higher for longer before they cave in to a collapsing US economy. That cave could have interest rates falling and returning ti zero again and to the detriment of Inflation soaring to new highs. That will be devastating. Meanwhile the US currency is under attach by Nations join BRICS and the potential of a serious challenge to the USD's hegemony. No the USD won't go away…yet. But as they say, the writing is on the wall. Overseas dollars will come home and that adds to inflation all the more. Houston, we have a problem here.
What to do with a Fed that insists on destroying the economy? End them. Return money issuance and control back to Department of Treasury and pout someone in charge who knows what the hell they are doing. Then get spending under control Without it the Treasury will still be under pressure to monetize the debt and print money to fund deficits. This is a crucial time and requires serious men and women who are honest and strong willed. They will get fought every inch by the swamp and war machine who make fortunes from bad polices while good hard working honest people and families suffer. Deficits, inflation, no problem, send the bill to the US taxpayers. ENOUGH! End the Fed and get back on track with some truly effective spending cuts, not the miserable impersonation of them like the Republicans tout they achieved in the last debt deal. They achieved nothing for Citizens but did give Biden's admin an unlimited check writing privileges. Doubt me,? Read the deal for yourself at https://www.washingtonexaminer.com/news/house/debt-ceiling-agreement-read-the-full-legislation
I have day to day advice for clients. During Covid, most of my clients did great because some planning had been in place. I did have one client go under but mostly by their own decisions and inaction. I am not happy about even one having trouble, but self flagellation is not my style. I am forging ahead now providing what I believe is important maybe even existential guidance. Inflation is NOT over,a Recession IS coming and worse than most expect, and the USD will have less purchasing power than ever. A new currency might delay collapse but it will still be a Fiat Currency and not much different than using credit cards which are digital already…there are some bad aspects to a CBDC so don't be complacent. Have plans to function in spite of it. Become a client and I will help you accomplish that.
Interesting times, I'd say.
Best,
Donn Marier
DM-Your Own CFO