Quantitative Easing

Powell wins victory over progressives with weak but growing GDP numbers

After two straight quarters of economic contraction – the classic definition of a “recession”, despite the National Bureau of Economic Research’s decision to declare the first half of this year as such – the economy grew at an annualized rate of 2, 6% in the third quarter of this year, beating experts’ expectations of 2.4%. Between nominal GDP expansion and the unemployment rate remaining at a near-record high of 3.5%, no one has more cause for celebration today than Federal Reserve Chairman Jerome Powell.

Although President Joe Biden has promised to respect the independence of the Federal Reserve, the rest of the Democratic Party has allied itself with Wall Street in its attempt to bully the country’s central bank into ending its campaign. crucial and courageous quantitative tightening. The failure of the Fed’s quantitative easing and zero interest rate policies over the past decade have proven crucial to the left’s favorite policies, and now that inflation has proven itself again Being a monetary phenomenon, Democrats have little choice but to bully the Fed with calls for pathos about their rate hike campaign threatening jobs and economic growth.

There are just two problems: the Fed has explicitly said it doesn’t care, and nearly a year after its quantitative tightening began, the economy is still expanding and creating jobs.

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With real interest rates still very negative (the federal funds rate is expected to reach 4% by the end of the year while inflation remains near a four-decade high at 8.2%), the Fed still has some way to go, but Powell pledged to see inflation through, explaining that the Fed will prioritize getting inflation back to its preferred benchmark of 2% at the cost of a recession and even of the lesser half of his dual mandate, “full employment”. The Fed continued to defy investors’ expectations of a “pivot”, and the Fed’s final minutes included the fact that “many participants pointed out that the cost of taking too little action to reduce inflation probably outweighed the cost of taking too many measures.”

And contrary to the repeated warnings of Elizabeth Warren and company, nominal employment and economic expansion have held. In large part, this GDP print is so strong because of our exports, which have been bolstered by the strength of the US dollar, which in turn has been bolstered by Fed rate hikes, instilling confidence in markets. global.

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None of this means that a recession is not imminent. A decade of ZIRP, QE, and our national debt rising to $31 trillion, making our debt-to-GDP ratio the highest since World War II, has necessitated a shattering economic correction. The Dow Jones Industrial Index down 6% since the start of Biden’s presidency and the Nasdaq nearly 20% is just the start of this correction, and as a government and Americans, racking up card debt credit at the highest level in 20 years, rely on borrowing and increasing interest rates on these borrowings, the economic situation will only worsen.

But for now, the Fed has scored another crucial hedge. It’s something that at least Powell can celebrate.