The WSJ’s Jon Hilsenrath is known to speak for the Fed, and today issues a warning that the Fed is worried that is has little room for action to intervene in the next recession.
The implication is that, since the next recession is inevitable, the Fed is willing to give it a push-start by raising rates, so that there is room to reduce them to stop the recession. Got it? If you are having problems, then you need a course in Keynesian economics so that your brain abandons logic.
It is reasonable to assume that his piece is a warm-up to prepare markets for the Fed minutes to be released tomorrow.
The reality is that there has been no recovery. People have lost hope and abandoned the workforce in droves, encouraged not to return by the welfare trap that makes the loss of benefits outweigh any additional income below $60-$70K (depending on state, family circumstances, etc.). That kind of income is simply unattainable when re-entering the workforce (or initially entering it, except in a few professions). The influx of illegal immigrants, generally unable to obtain welfare benefits, has provided a pool of labor to make up for the loss. Investment has been discouraged in favor of consumption, and much so-called investment will turn out to be uneconomic malinvestment because it has been directed by imbecilic government subsidies, such as for solar energy. Consumption has been maintained by cheap imports and ever-rising government debt.
Unfortunately, the wheels are now starting to come off and the Fed finds itself backed into a corner. “Do something” will be the cry. And so the government will do something, which will inevitably make things worse.