I remember when I was working on my PhD in economics at Georgetown, one of my classmates actually called Paul Volcker and he just picked up the phone. He asked the FED Chairman about his monetary policy at that time and the fact that the prime rate was over 20%. The prime rate. They chatted for about fifteen minutes and the call became a legend in our program.
But Paul Volcker’s monetary policy worked! He allowed the short-term pain to achieve the long-term gain, just as Pompliano noted in his article. I was just talking about this Federal Reserve shift in policy this morning with my partner noting that it would definitely benefit me, because I am one of those asset holders – stocks, real estate and businesses. How will it benefit me? Because it will keep the stock market artificially high, and keep interest rates artificially low – because other than quantitative easing, that’s the only thing they can use.
Poor, working poor and even the middle class, however, don’t have a lot in stocks or other assets. They will just see the prices of their food and other essentials increase. Wow. The policy shift is breathtakingly cruel in an economy that already sees near record levels of income inequality.
I’ve been saying for a long time that we have to plan on interest rates going up. But I never thought it would be hurried along by the FED.
How in the world do they think this is a good idea?