{"id":1646046,"date":"2022-09-18T08:52:40","date_gmt":"2022-09-18T12:52:40","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1646046"},"modified":"2022-09-18T08:55:34","modified_gmt":"2022-09-18T12:55:34","slug":"desmond-lachman-the-feds-extreme-about-face-threatens-a-very-hard-landing","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/desmond-lachman-the-feds-extreme-about-face-threatens-a-very-hard-landing\/","title":{"rendered":"Desmond Lachman: The Fed\u2019s Extreme About-Face Threatens a Very Hard Landing"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"&quot;\"><div class=\"counts mashsbcount\">22<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fdesmond-lachman-the-feds-extreme-about-face-threatens-a-very-hard-landing%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1646046&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><aside class=\"single__inline-module alignleft\">\n<\/aside>\n<p>When it comes to the stock market, it seems that Jerome Powell\u2019s Federal Reserve has but two modes of operation: Either provide seemingly unlimited support (as the Fed did last year), or try to beat it into submission by an overly hawkish monetary policy stance \u2014 as the central bank is doing right now.<\/p>\n<p>This swing from one extreme to the other is unlikely to end well for our economy.<\/p>\n<p>In early 2020, in response to the <a href=\"https:\/\/nypost.com\/2022\/09\/08\/jerome-powell-hopes-fed-rate-hikes-wont-cause-deep-recession\/\">COVID-induced recession<\/a>, the Fed opened its monetary policy spigots on an unprecedented scale. Not only did it reduce and then maintain its policy interest rate at its zero bound till the end of last year, it bought US Treasury bonds and mortgage-backed securities at a staggeringly rapid pace.<\/p>\n<p>Whereas it took the Ben Bernanke Fed some six years to increase the size of the Fed\u2019s balance sheet by over $4 trillion after the 2008 crisis, it took the Powell Fed barely nine months to do the same thing.<\/p>\n<p>The net result of the Fed\u2019s monetary policy largesse in 2020-21 was the strongest stock market rally in the post-war period. It also led to a situation where by the end of last year, stock market valuations had reached nosebleed levels experienced only once before in the last hundred years.<\/p>\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2022\/09\/powell-federal-reserve-03.jpg\"><\/a><figcaption>Jerome Powell previously warned that the Fed\u2019s inflation-fighting efforts will inevitably \u201cbring some pain to households and businesses.<\/figcaption><figcaption><span class=\"credit\">JIM WATSON\/AFP via Getty Images<\/span><\/figcaption><\/figure>\n<p>Fast forward to this year and the Fed seems to be doing everything it can to burst the stock-market bubble. Not only is it raising interest rates in 75-basis-point steps in a belated effort to <a href=\"https:\/\/nypost.com\/2022\/08\/17\/feds-future-rate-hikes-hinge-on-inflation-data-minutes\/\">regain control over inflation <\/a>(something that it has not done in the past 30 years), it\u2019s also withdrawing market liquidity at an unprecedented pace by choosing not to roll over its maturing bond holdings.<\/p>\n<div class=\"single__inline-module inline-module inline-module--newsletter alignright\">\n<div class=\"inline-module__inner\">\n<h3 class=\"inline-module__title headline headline--combo-sm-md\">\n\t\t\tKeep up with today&#8217;s most important news\t\t<\/h3>\n<p class=\"inline-module__cta\">\n\t\t\tStay up on the very latest with Evening Update.\t\t<\/p>\n<\/p><\/div>\n<\/div>\n<p>Whereas last year the Fed was buying bonds at the pace of $120 billion a month, today it is allowing its balance sheet to shrink by $95 billion a month. And it\u2019s doing so at the very time that financial markets are on the back foot.<\/p>\n<p>An unfortunate consequence of the Fed\u2019s abrupt shift to monetary-policy hawkishness has been the fastest onset of a bear market in the postwar period. Since the start of the year, the NASDAQ has fallen some 25%; the S&#038;P 500 index, 20%. That represents the evaporation of around $9 trillion, or 40 percent of GDP, in household financial wealth.<\/p>\n<p>Unfortunately for stocks, the Fed is showing no sign of backing off its hawkish stance anytime soon. Indeed, with inflation remaining stubbornly close to a 40-year high, Powell is priming the market for another series of<a href=\"https:\/\/nypost.com\/2022\/07\/27\/fed-hikes-key-interest-rate-0-75-points-for-second-time-as-inflation-surges\/\"> larger-than-normal interest-rate hikes <\/a>by indicating that the Fed won\u2019t ease policy until the job of reducing inflation is done.<\/p>\n<p>He is also showing no sign of concern about the stock market\u2019s weakness or of any intention to reintroduce the so-called \u201cFed put\u201d that has in the past provided a floor to the stock market.<\/p>\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2022\/09\/powell-federal-reserve-01.jpg\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"682\" src=\"https:\/\/cndimages.nyc3.cdn.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2022\/09\/powell-federal-reserve-01.jpg\" alt=\"Ben S. Bernanke\" class=\"wp-image-23899354\" srcset=\"https:\/\/cndimages.nyc3.cdn.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2022\/09\/powell-federal-reserve-01-1.jpg 1536w, https:\/\/cndimages.nyc3.cdn.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2022\/09\/powell-federal-reserve-01-2.jpg 1024w, https:\/\/cndimages.nyc3.cdn.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2022\/09\/powell-federal-reserve-01-2.jpg&amp;w=512 512w\" \/><\/a><figcaption>Ben Bernanke served as the Chair of the Federal Reserve from 2006 to 2014.<\/figcaption><figcaption><span class=\"credit\">Andrew Harrer\/Bloomberg via Getty Images<\/span><\/figcaption><\/figure>\n<p>To be sure, contrary to what Donald Trump would have us believe, the stock market is not the economy. However, trouble in the market can have a negative impact on the economy. Notably, it can cause households to pull back on spending as their financial situation deteriorates.<\/p>\n<p>That in turn can set us up for a vicious cycle: A weakening in the economy can cause further market losses that can send the economy even lower.<\/p>\n<p>We have to hope that the Fed is alert to this risk. If not, we should brace ourselves for an economically rough 2023.<\/p>\n<p><em>Desmond\u00a0Lachman, an American Enterprise Institute senior fellow, was formerly a deputy director in the International Monetary Fund\u2019s Policy Development and Review Department.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When it comes to the stock market, it seems that Jerome Powell\u2019s Federal Reserve has but two modes of operation: Either provide seemingly unlimited support (as the Fed<\/p>\n","protected":false},"author":1,"featured_media":1646048,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[],"tags":[],"class_list":["post-1646046","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1646046","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1646046"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1646046\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1646048"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1646046"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1646046"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1646046"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}