Tuesday, September 7, 2010

The Very Scary and Confused Fed

Last month two regional Federal Reserve banks continued to call for an increase in the discount rate charged to banks on emergency loans , despite signs that the U.S. economy’s recovery was losing steam, reports WSJ.

Prior to the Fed’s latest policy-setting meeting Aug. 10, directors of the Federal Reserve Bank of Kansas City and from the Dallas Fed voted to increase the discount rate by a quarter percentage point to 1%. The discount rate is currently 0.75%.

These Fed banks are obviously not watching money supply (M2), since there has been little to no money supply growth. It shows confusion as to what the proposed hike would do (which is shrink the money supply). On the other hand, other Fed members and regional Fed presidents, I suspect believe they are running an easy money supply because rates are low. However, rates are not so low (and they are not zero) that they are causing extreme growth in money supply.

It's really like these guys are all looking at Geiger counters, instead of a compass as they steer the economic ship.

The ship  is moving but they really have no idea the real direction they are headed in.


  1. St. Louis had been voting for an increase as well until they reversed on June 10, 2010. Kansas City first voted for an increase to 1% on April 15; St. Louis and Dallas on April 22.

  2. from CJ Maloney:

    While the money supply measures may not be growing, have no doubt that they are vastly higher than they would be without all the money and credit creation over the past three years. We should, by all rights, be experiencing a heavy fall in prices. No such luck, I'm afraid.