The Economics and Research Center webinar was held last week, and the archive can be accessed by registering at the WhatTheyThink webinar page. Complete video, audio, and slides can be found there. 

The Fed keeps telling us that they will be raising rates and unwinding their balance sheets. The chart shows how much that balance sheet ballooned almost nine years ago, and how in recent months it’s been increasing again after a slight dip. The red line is the long run trend line at the rate the balance sheet grew for decades, at 6% per year in current dollars. The Fed’s outsized balance sheet may take decades to return to that trend, and it’s more likely it never does. There’s always an excuse for monetary intervention of some sort and not intervening in the future might be career limiting. The last time someone running the Fed took action that was so strongly against sentiment was Paul Volcker in the early 1980s. That was an odd blip in monetary history. They say don’t fight the Fed, meaning to follow Fed actions as part of investment strategy, but the Fed doesn’t do much to fight with. They’re just staying where they’ve been and making tiny changes, paralyzed by their own past actions, with all kinds of statistics that say staying put is safe. 

Janet Yellen’s term is coming to an end in February, and there is a possibility she may be reappointed. It is more likely that she will be replaced, with reports that it will be Jerome Powell. He would probably continue her policies, at least according to MarketWatch. For a while, the frontrunner seemed to be Kevin Warsh, but some of his comments about Fed actions while he served in a Fed role are contrary to what the Fed did. Since “everyone” thinks the Fed has done a great job and saved the economy (by perpetuating sub-par growth with the explanation that it would have been worse), he’s not viewed as being able to do what would be needed at a time of crisis. Therefore his warnings about problems with Fed policies are being portrayed today as anti-worker and out of touch, when they’re not about that, they’re about his “marrying up” into the wealthy Lauder family.