The Fed continues its artificial monetary policy and presses forward with historically low interest rates. They have kept interest rates at nearly 0% since 2008 — going on six years now. The economy has been creeping back slowly and artificially held together by poor policies that have it drugged up so badly, it’s now required for life support.
The new normal for the Federal Funds Rate is 0%. This is what the economy has adjusted to, and I don’t mean for the short-term, I mean we’ve settled into this comfort zone for a good six years now. Making changes to this number will have ramifications that will trickle down to everything from corporate profits, to real estate, and the ability for the working class to earn living wages; between those three things, everything else stems out.
Level of Monetary Accommodation
Janet Yellen’s testimony on Tuesday indicated that a high level of monetary accommodation remains appropriate. There were comments at this meeting that the economic environment has been improving and that short-term rate increases should be implemented by others at that meeting. Janet Yellen had to point out that the labor force participation rate is very low and wage rate increases is slow justifying that low interest rates are necessary to sustain this fragile environment. This is confirmation that the economy isn’t getting back to where it was and quality of life in America is very below par. Her acknowledgement that rates could rise sooner rather than later is, in my opinion, a way to indirectly give everyone hope to the idea that the economy is improving, but also a way to buy more time and kick the can down the road continuing its progressive policies.
Food Inflation Out of Control
Food inflation is out of control and completely disconnected from what is being reported by the official numbers. In just one year, consumer prices for ground beef rose 10.4%, pork rose 12.7%, fresh fruit rose 7.3%, and oranges along rose 17.1%. The U.S. Department of Agriculture predicts overall food prices will increase 2.5% to 3.5% this year. Whatever the discrepancy is, these foods that were previously mentioned are the foods that get eaten the most and will have the largest impact on the consumer. I think people would be happy to have only 2.5%-3.5% price inflation in their food, instead they get covertly crushed by deception.
Janet Yellen must understand all of this. When looking in from the outside, sometimes I feel like the Fed officials must just be absolutely blinded and ignorant to how to how bad things really are. When they throw out unemployment figures and talk about cutting back on QE, they must understand that the economy is still in shambles. For the past six years now, the availability for jobs as a teacher has been in a depression. Unless you were extremely specialized in a demanding subject, you have probably had an extremely difficult time finding work. Most of these would-be teachers are working non-related jobs that barely cover their student loan payments. This has been the story across the board in most industries.
The economy isn’t improving that dramatically and the cost of living is going up; drastic changes aren’t likely. What is more likely as we continue to see everything inflate, would be another bubble burst. Especially when the Fed actually tries to take its foot off of the pedal and pull back on its policies. Again, I’d like to give these people the benefit of the doubt that they know what they are doing, but I really have no precedence that would support any faith in this notion.
Chief Editor at CrushTheStreet.com