The FED's lack of a strong response to the obvious inflation has been baffling me. I originally believed that they were clueless and bereft of a strategy to cope. I now believe that I finally understand their strategy, it's an Invisible Hand Reverse Robinhood strategy. Basically they just plan to throw grandma under the bus by following Adam Smith's advice to do nothing and let market forces sort out the inflation. The FED appears to be just letting the invisible hand of the market dampen inflation by letting the cure for high prices be high prices.
The problem with this strategy is who suffers as the invisible hand doles out the cure. Letting inflation run riot will crush grandma retirees and pensioners, not to mention lower rung workers on a fixed salary. Of course, the asset rich wealthy and the stock holders, the support of which is the new "secret" primary FED mandate, will simply grow richer insulating them from pain. The risk in this strategy is if wages are driven higher by labor shortages creating a viscous perpetual circle of inflation, but currently wages are lagging inflation and so the pain is being felt by salaried workers as well as pensioners and savers which the FED for years now has clearly shown they are not concerned with.
It appears that this FED has decided to let the bottom rungs of the economic ladder do all the suffering letting their demand destruction stamp out this inflation burst. Cold blooded, yes, but if Adam Smith was right, it should work. The invisible hand will eventually flatten prices as demand destruction due to high prices and price driven supply increases finally kick in as the corporations benefit from lower real labor costs.
The whole point of the above diatribe is that this FED strategy should be wildly bullish for the stock market, since the FED apparently is not going down the traditional path of rapidly raising interest rates to fight inflation which would create a classical recession driving down stock prices which would spread the suffering up and down the economic ladder. The FED is accelerating the wealth gap by driving down the cost of labor for corporations which also should be bullish for stocks. Grandma is toast since the invisible hand will be slapping her down in this reverse Robinhood strategy, but Skip and Karen on Wall Street are going to be living larger than ever. It's good to be rich, especially when the FED's got your back.
Regards,
Douglas
Edited by Douglas, 20 April 2022 - 06:05 AM.
