Delicate machines....
Powell is just going to press every button until it breaks
Fed Chair Jerome Powell embodies JM Keynes’ famous epithet -
“Today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time—perhaps for a long time.”
Listening to Jerome Powell (at Jackson Hole and more generally), we’re reminded of the period when the Formula One authorities banned engineers from providing guidance to drivers during races about the settings on the race cars. The Mercedes-Benz team famously sent world champion Lewis Hamilton out to race at Baku with the wrong engine settings programmed into his car, reducing its engine output and speed, creating this (edited) exchange between F1’s greatest driver of all time and his race engineer Pete Bonnington:
Bonnington:"The problem appears to be with the current mode that you are in."
Hamilton: "I don't know what you mean. I don't know what's wrong. Can I make suggestions and you tell me if that's okay?"
Bonnington: "Nope, that's not allowed."
Hamilton: "Can I not reset this thing? This is ridiculous, guys. I don't know, I'm looking at my fricking dash every five seconds trying to find the switch in the wrong position."
Bonnington: "Lewis, it's nothing you're doing wrong, just got a setting that's incorrect."
Hamilton: "I might not finish the race, I'm just going to push each button and try and change everything."
Bonnington: "Erm, we don't advise that, Lewis."
What we see today is Jerome Powell thinking ‘I’m just going to keep hitting the economy with all these big wrecking balls until I break inflation.’ [1]
Erm, we don’t advise that Jerome.
This almost certainly means that there could be problems ahead for the US economy.
Jerome’s song - https://www.youtube.com/watch?v=My2FRPA3Gf8
[1] We have long complained that the Fed trying to tackle inflation through tighter monetary policy is the wrong solution. The post-pandemic inflation episode in our view clearly was mainly down to the timing and volume of short-run, or one-time, demand created by governments, especially the US Government. The direct depositing of stiumlus cheques (stimmies) into the accounts of all Americans at once may have been a well-intentioned and theoretically sound idea. However, as supply chains were badly affected at that time, it concentrated spending within a narrow time frame, when supply was unable to respond. Since then policymakers have tried to respond to this specific timing mismatch by slowing the entire US and global economy to weaken demand in the longer-term across the board. This is currently on course to cause a significant slowdown or even recession, with potentially over 2 million American jobs lost (https://www.foxbusiness.com/politics/fed-jerome-powell-elizabeth-warren-clash-tense-exchange-rate-hikes) This is why Senator Warren has labelled Jerome Powell “a dangerous man to be running the Fed”.
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