Thanks to the effects of the virus on the economy, here at last is an all-too-brief discussion about the Federal Reserve’s role in propping up Wall Street, at the expense of the real economy.
As I have said before, the stock market has been over-inflated for years, due to interest rates being held artificially low. With no money to be made in safely insured accounts, such as Certificates of Deposit, it went to equity investments, helping to inflate the market. The Federal Reserve should have been raising rates a long time ago, but didn’t thanks to the core rate of consumer inflation being very low, while income inequality continued to grow. As always, investment bankers became addicted to the bull market, and refused to see the weak ground it was running on.
The last hike in interest rates should have been left in place. The fact that the Fed lowered rates last year was proof that Jay Powell was, at best, using outdated thinking and, at worst, responding to pressure from Trump. Powell needs to see that we can’t return to business as usual, and he must lead the Fed into taking on the role of fighting inflation on Wall Street. It won’t be easy, because if there is a lessening of income inequality — which will require a more progressive tax policy — there is the risk of returning to the days of consumer inflation.
