Notes From My Journal

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I just read an astonishing essay by Jeanna Smialek in The New York Times arguing that the Fed’s recent rate cut is motivated by a desire to boost incomes of the working class and create more income equality.

This is so absurd on so many levels that I am unable to begin to talk about it.

I’ll say this: A friend of mine was involved in the fight promotion business many years ago. I asked him about all the corruption and he helped me understand why it exists and why it is almost impossible to get rid of. The reason: When the game is fair, the champions can’t last more than one or two defense fights. Thus, the gates are small and nobody makes much money. But when you set up a system that allows champs to stay champs, the press gets excited and they sell more stories. The audience gets excited and they buy more tickets. The owners and fighters and managers and trainers all make 10 times what they would otherwise, and even the popcorn vendors make out better.

Yes, rate cuts may trickle down to the working class. But, at best, it will be a trickle. The real beneficiaries will be the big public companies whose stocks are artificially pumped up (and whose insiders are selling their shares into the fake market), the brokers, bankers, and lawyers that support the financial industry, and, most of all, the incumbent politicians whose chances of getting reelected are almost locked in when the economy is growing.

The difference between the fight game and the economy is this: The cost of rigging the fights is that the quality of the game is diminished. Many would-be champions never get their title fights because it wouldn’t be good for business. The cost of cutting rates (and, thus, pumping fake money into circulation) is that trillions of dollars of debt are being accumulated that we will eventually pay back with either massive inflation or an economic collapse.

In any case, read on. This piece is simply too naïve to believe:

 Pride Flags and Rate Cuts: Fed Loosens Up to Connect With Average Workers 

by Jeanna Smialek 

The Federal Reserve’s decision this week to cut rates for the first time in more than a decade was, in part, a reflection of the central bank’s efforts to be more attuned to the needs of everyday Americans.
Unemployment in the U.S. is close to a 50-year low, but many people remain out of work or have seen only modest pay increases. By lowering rates, the Fed could foster a labor market that draws in disadvantaged workers and prods companies to raise wages.

Despite the positive momentum, many people have remained on the sidelines or have seen only modest pay increases. By lowering rates, the Fed hoped to protect the economy against potential risks to ensure that it keeps growing. The move could foster a labor market that continues to draw in disadvantaged workers while prodding companies to raise wages.

“The best thing we can do for those people is to sustain the expansion, keep it going,” the Fed’s chair, Jerome H. Powell, said after the move. “That’s one of the overarching goals of this move – and all of our policy moves.”

 The wealthiest also benefit from the Fed’s decision, since rate cuts push up stock prices, creating big gains for investors. But the central bank’s push to portray its policy as a win for rank-and-file workers highlights an evolution: The Fed is trying to be more attuned to the needs and attitudes of everyday Americans.

Some of the changes are superficial. Mr. Powell, previously referred to as “chairman” in the Fed’s post-meeting releases, is now a gender-neutral “chair.” The 17-member policymaking body is as diverse as it has ever been, with leadership roles held by two openly gay members, five women, one black member and one person with Indian heritage. The powerful Federal Reserve Bank of New York flew rainbow flags outside for pride month this summer, for the first time.

A visit to the Federal Reserve Bank of Atlanta’s Instagram account shows that it is following up its #dogsofthefed campaign with a #humansofthefed one, complete with inspirational stories and not-so-candid snaps.

But something more significant is happening under the surface.

An institution long shrouded in mystique and hemmed in by its desire to remain above the political fray is opening up. Fed research has long hit on diverse and even hot-button topics – from social mobility to global warming –  but presidents at its 12 regional banks increasingly promote and publicize that work. They even occasionally take positions on issues like immigration and skills training.

Fed officials have also spent much of the year visiting community groups in places like Augusta, Ga., and Camden, N.J., part of a widely publicized campaign aimed at convincing the public that policymakers are listening to workers’ concerns. Officials now regularly talk about unemployment rates by race and gender.

A political calculus is at play. The Fed needs to shore up public support at a time when President Trump regularly criticizes its actions and when government bodies – especially opaque ones aligned with bankers – are anything but popular. It has come under congressional and popular pressure for being slow to diversify and not focused enough on the most economically disadvantaged.

Mr. Powell nodded to those challenges in a recent speech in Paris, saying, “Our audience has become more varied, more attuned to our actions and less trusting of public institutions.”

America’s shifting social discourse also enables the Fed’s evolution. Janet L. Yellen, the Fed’s first female leader, broached the topic of income inequality in an October 2014 speech, questioning whether it was consistent with American values. It was an unusual topic for a Fed leader to take up at the time, and Republican lawmakers chastised her.

“You’re sticking your nose in places that you have no business to be,” Mick Mulvaney, a South Carolina representative at the time and now Mr. Trump’s acting chief of staff, told Ms. Yellen during her testimony to the House Financial Services Committee the next February.

Representative Sean Duffy, a Wisconsin Republican, said the speech showed political bias because Democrats were campaigning on the issue ahead of the midterm election.

Five years later, Fed officials frequently talk about income inequality. In February at a forum with teachers in Washington, Mr. Powell echoed Ms. Yellen’s sentiments – but got no pushback.

“We have work to do to make sure that the prosperity that we do achieve is widely spread,” Mr. Powell said. “We need policies that can make that happen.”