A Binging Pivot: Fed Cuts Rates, But Inflation Nightmare Looms

By Greg Maresca

It was one of the most anticipated announcements of Joe Biden’s presidency. It was nearly on par with his dropping out of the presidential race and fading to irrelevance.

For the first time since 2020, the Federal Reserve cut interest rates by half a percentage point, bringing the range between 4.75% and 5%, with anticipation of more to come.

“The U.S. economy is basically fine,” claimed the chairman of the Federal Reserve, Jerome Powell, who made the cut regardless and seemed unconvinced about anything else. Unsurprisingly, the stock market approved, following up with record highs.

The Fed has always been a reactionary institution when deciding on rates. It relies on historical data and models like the Phillips curve, which was debunked two generations ago. Cutting rates will grow the money supply and bring some relief from higher interest rates. The Fed is putting pressure on inflation to bring down interest rates as a way to manage our exploding deficits.

What is the real Fed rate cut impact? That’s simple. The rate cut will only fuel inflation – an unwritten and unrestricted tax on everyone – no exceptions.

The interest rate was at a historical average, but the national financial sector and the Washington bureaucratic swamp are addicted to cheap money, making $50,000 cars and $300,000 homes seem affordable.  Over time, this money infusion will make cars and houses even more expensive.  Believing cheap money is the driving force of economic prosperity is as counterfeit as they come. Such behavior increases demand without an increase in supply – the root cause of inflation.  Keep in mind that both food and fuel are excluded from inflation calculations.

Interest rates are The Fed’s dependent drug.

“When is the next cut coming, and how big?”

A half of a percent reduction suggests the economy and its capacity for job creation is not nearly as good as Powell or any other entrenched government bureaucrat will admit.

There was no need for the cut. But lower rates produced lower mortgages and appeased the masses, making them feel better about the current political and economic situation.

The Fed, “a nonpartisan agency,” put its thumb on the scale during a presidential campaign, begging the question: Is The Fed impartial and independent or beholden to politics and Wall Street? Lowering rates at the expense of higher inflation seems self-serving in the run-up to a presidential election less than six weeks away.

Powell, who served as a carnival barker for the Biden administration’s highest inflation rates in over 40 years, told us inflation was “only transitory” and is doing his best to foster a post-inflation merry-go-round.

The Fed’s decision is analogous to the hangover coming the morning after a Friday night binger. This economic hangover, however, will conveniently occur after November’s election, so make sure you start your Christmas shopping early. None of this bodes well for glad tidings.

Typically, the Fed cuts rates in response to economic downspin, not because of a supposedly stable and growing economy. If the economy goes south with rates already low, this only serves to dig the hole deeper.

The real issue that is ignored, dismissed, or unacknowledged is the ever-increasing federal spending. Every dollar spent pilfers a dollar through taxes, borrowing, or money-printing. Unless there are cuts to spending and debt reduction, nothing changes, diminishing the fading American dream even further.

How about less government regulation and more innovation and investment to drive the economy?

The cut is all about the election and The Fed’s preferred outcome. It is nothing short of a weak attempt to prop up the incumbent executive branch that would certainly preserve Powell’s job. There is no need for the bureaucrats to fret, as the working class always takes the brunt of the foibles of incessant government intervention.

The cut also implicitly implies The Fed overplayed its hand and is concerned about a recession.

Prematurely cutting interest rates is the perfect recipe for increasing inflation. In just three-plus years, the dollar lost 20% of its value, turning greenbacks into the proverbial toilet paper.

The Fed’s rate cut in a supposed stable and growing economy only kicks the inflation can farther down the road until after November’s election.

How politically expedient.