It’s been said that the war is not meant to be won; but what about America’s recovery from COVID-19? Hearing Fed Chair Jerome Powell speak last week as he held interest rates steady and continued with monthly billion-dollar asset purchases didn’t offer any assurances that victory is on the horizon.
The way he uses the word recovery, a word he uses six times in his speech, should cause the public to wonder what exactly is going on. Pay attention to the message he conveys through his various quotes below, starting with some justification of easy money policies:
These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to support the economy until the recovery is complete.
Meaning, if the recovery never happens, then monetary accommodation will never stop. He continues:
Progress on vaccinations and unprecedented fiscal policy actions are also providing strong support to the recovery… Real GDP rose at a robust 6.4 percent… The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery.
Per above, he cites vaccinations and fiscal response being the reason for a rise in GDP. There exists this bizarre negative feedback loop, because GDP includes government spending. Ergo, the greater the fiscal response (i.e., government spending), the greater the increase to GDP. However, the more the government spends, the worse off society becomes. Yet the worse off society becomes, the more society becomes reliant on the government...
The path of the economy continues to depend on the course of the virus… The Delta variant has led to significant increases in COVID-19 cases, resulting in significant hardship and loss, and slowing the economic recovery.
According to Powell, economic recovery depends on the virus. This is unfortunate as the new Delta variant is taking a real toll on the country.
Luckily, the Fed Committee members closely monitor for signs of the recovery. He speaks of the upcoming asset tapering:
While no decisions were made, participants generally view that, so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate.
The key phrase being: so long as, meaning the tapering will begin so long as the recovery continues to stay on track. Also notice how he doesn’t mention the start date but believes the end date will be next year, probably June/July.
At last, the speech concludes, but not before reminding us:
Everything we do is in service to our public mission. We at the Fed will do everything we can to support the economy for as long as it takes to complete the recovery.
Something just doesn’t add up. If the Fed will only stop once the recovery is finally complete, then one thing becomes certain: The Fed will never stop helping.
