The Federal Reserve, What are they good for?

Absolutely nothing.

The Federal Reserve, often referred to as the "Fed," has a dual mandate: maintaining stable prices with a 2% annual inflation target and ensuring low unemployment. However, recent decisions and statements by Fed Chair Jerome Powell have raised questions among many Americans about whether the central bank is effectively fulfilling its role in controlling inflation and supporting the economy.

At the latest Federal Open Market Committee (FOMC) meeting, the Fed faced a crucial decision. Despite unemployment being currently considered low but slowly rising, one might expect the Fed to raise interest rates to combat soaring inflation. After all, inflation has been averaging around 4.5% for nearly four years, well above the Fed's mandated 2% price stability target set by Congress. Yet, despite indicating last year that raising interest rates was their primary tool to tackle inflation, the Fed opted not to increase rates at this meeting, leaving many wondering about their effectiveness.

The Red line is the Feds 2% target currently 100% higher even with rates at 5.5%

This move has prompted many to question the Fed's commitment to its price stability mandate. Gas prices, in particular, have surged, nearing record highs and experiencing almost a 100% increase since January 2021 and 30% in 2023. When asked about this significant increase, Jerome Powell responded, "The Fed tends to look through energy moves that we see as short-term volatility." This response has raised concerns about the Fed's apparent indifference to the rapid rise in energy prices, even as OPEC and Russia reduce supply, and the Strategic Petroleum Reserve (SPR) is being tapped into to limit the short-term price increase in gas, increasing the risk of even higher energy costs in the near future.

The disconnect between the Fed's actions and its mandate is becoming more pronounced. During the press conference, Powell's stance on a "soft landing" for the US economy seemed to waver. While he initially expressed confidence in this scenario earlier in the year, he later admitted, "No, No, I would not do that...I thought there was a path to a soft landing, but there are factors out of our control...and we will restore price stability." This sudden shift in tone raises questions about what Powell may know that the public does not and why he isn't more transparent about it.

Dec 2022 Soft Landing

Sept 2023 No Soft Landing

Furthermore, concerns over a potential credit debt bubble and widespread public dissatisfaction with the economy were addressed indirectly. Powell acknowledged that people "hate inflation, hate it," and this contributes to negative perceptions of the economy. However, he failed to fully address the underlying issues causing discontent among Americans.

The reality is that many Americans are feeling the strain of massive inflation since January 2021, depleting their personal savings, as real wage increases have not kept pace with rising prices. The gap between reported inflation with the CPI and PCE indexes and the actual cost of goods creates a stark disconnect between what people read or hear in the news and their everyday experiences. This gap has led to increased credit card debt, which recently hit a record $1 trillion, as people struggle to maintain their standard of living in the face of skyrocketing costs, including gas prices approaching $4 per gallon nationwide, with some areas exceeding $7, as seen in California.

One telling statistic is the decline in US retail sales after adjusting for inflation, marking the longest consecutive year-on-year decline since 2009. Americans are now paying more for fewer goods, and this trend is reflected in rising sales at gas stations while non essential purchases like iPhones are suffering.

In conclusion, as the Federal Reserve grapples with rising inflation and its mandate for price stability, questions about its effectiveness and its impact on the middle class are rising just like inflation. The Fed's mixed messages and apparent reluctance to take decisive action on inflation like Paul Volcker did, have left many wondering: What is the Fed good for, if not to help the middle class weather the storm of rising prices and economic uncertainty?

**The Coastal Journal encourages you to stay informed, engage in conversations about the implications of monetary policies, and hold our leaders accountable for the betterment of our society.