This past Tuesday, Federal Reserve Chair Jerome Powell sat for an interview with Wall Street Journal reporter Nick Timiraos as part of the newspaper’s “Future of Everything Festival.” During that interview, Powell told Timiraos that U.S. markets “are orderly, they’re functioning.” The precise exchange went as follows: (Watch it at 24:38 on YouTube video here.)
Timiraos: “A Number of people have suggested to me the one thing that might slow you down or at least make this much more difficult would be some kind of market cataclysm. I wonder, in part, if that is why you are trying to be more transparent, not erratic, making sudden moves on your policy moves. My question there is, where’s your level of concern that financial stability and controlling inflation by raising interest rates, maybe a lot, might be fundamentally incompatible in that raising rates causes financial disruption, but doesn’t actually bring inflation under control? Where is your level of concern around that situation?”
Powell: “I don’t see that happening. We monitor a very broad range of financial conditions, and we’re doing that now, we’ll keep doing that. Different cycles look different. Sometimes the tightening takes place in one market, sometimes in another, sometimes in credit spreads, sometimes in all of them. So we’re watching them all as a group. Volatility has been up a little bit, that has some effect on liquidity in some markets. Nonetheless, the markets are orderly, they’re functioning. I think they’re processing the way we’re thinking – the way the FOMC is thinking about policy – pretty well. And I think the idea, again, is to have financial conditions tighten to the point where growth will moderate but still be positive, but moderate to the point where supply and demand can get back in alignment, and where we can get inflation back down to two percent. I see that broadly working pretty well right now. Obviously, there are some volatile days in volatile markets. But, so far, I see us getting through this fairly well.”
Powell has a law degree, not an economics degree. Thus, his misdiagnosis that inflation would be transitory already makes his judgement suspect. To now suggest that the stock market is “orderly” and “functioning” in the face of a mountain of evidence to the contrary makes Powell look completely out-of-touch with reality.
Yesterday, the giant retailer, Target, lost 25 percent of its market value. In one trading session. That amounts to a $24.9 billion loss to shareholders. That’s not an orderly market. It’s also not normal….