Op-ed: Is the Federal Reserve lying about our country's fiscal health and what's about to happen to American families?

Federal Reserve Chairman Jerome Powell appears before the House Financial Services Committee to present the semiannual monetary policy report and discuss the state of the U.S. economy (YouTube).

Op-ed: Is the Federal Reserve lying about our country’s fiscal health and what’s about to happen to American families?

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WASHINGTON, DC — The Federal Reserve System is the central bank of the United States that is supposed to promote actions that benefit the U.S. economy and serve the public’s interests.

Yet, some are suggesting that the System is failing the U.S. and its citizens, and others go further and say it is purposely lying about our country’s financial health.

First, let’s briefly review what the Federal Reserve is supposed to do.

The Federal Reserve was created by Congress in 1913 to provide the U.S. with a safe, flexible and stable financial system that would reduce banking panics that occurred in the late 19th and early 20th centuries.

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Specifically, the Federal Reserve should perform five basic functions that affect the U.S. economy. These include tinkering with the nation’s monetary policy; stabilizing the financial system; monitoring the health of financial institutions; fostering payment and settlement systems; and pushing for consumer protections and community development.

There are three main components to the Federal Reserve System — the Federal Reserve Board of Governors (Board of Governors), the Federal Reserve Banks (Reserve Banks) and the Federal Open Market Committee (FOMC).

The Board of Governors, an agency of the federal government that reports to and is directly accountable to Congress, provides general guidance for the System and oversees the 12 Reserve Banks.

The Federal Reserve notes on its website:

“Within the System, certain responsibilities are shared between the Board of Governors in Washington, D.C., whose members are appointed by the President with the advice and consent of the Senate, and the Reserve Banks and Branches, which constitute the System’s operating presence around the country.

“While the Federal Reserve has frequent communication with executive branch and congressional officials, its decisions are made independently.”

The Federal Reserve’s goal is to create monetary policies that promote maximum employment and stable prices in the U.S., and it uses various tools to manage financial conditions that can achieve these two main objectives. It states:

“Monetary policy most directly affects the current and expected future path of short-term interest rates; the anticipated path of short-term interest rates then affects overall financial conditions including longer-term interest rates, stock prices, the exchange value of the dollar, and many other asset prices.

“Through these channels, monetary policy influences the decisions of households and businesses, thus affecting overall spending, investment, production, employment, and inflation in the United States.”

Monetary policy decisions are made by the members of the Board of Governors and the presidents of the 12 Federal Reserve Banks when they gather for eight regularly scheduled joint meetings of the Board and FOMC each year to discuss economic and financial conditions.

The Federal Reserve states:

“At its meetings, the FOMC considers how the U.S. economy is likely to evolve in the near and medium term, along with risks to the outlook for the economy.

“With this assessment, it then determines the appropriate monetary policy setting to help move the economy to the Federal Reserve’s goals of maximum employment and 2 percent inflation over the longer run.

“The FOMC also considers how it can effectively communicate its expectations for the economy and its policy decisions to the public.”

The main areas of vulnerability that the System looks at includes the changing prices of assets, such as houses; financial institutions holding more debt than equity; investors withdrawing assets from financial companies; and the level of credit or borrowing by households and businesses.

Yet, the hyperinflation of the last few months is drawing the attention of many to the Federal Reserve’s actions or lack thereof.

In an op-ed for Washington Examiner, Tiana Lowe wrote:

“Inflation now dominates voter concerns, especially harming nonwhite voters. They may react by pushing Republicans to historic wins in November.

“This has forced Democrats to change their tune and start talking like deficit hawks. It may be too little, too late, but finally, everyone is on board with the idea that inflation is bad — everyone, that is, except for the frauds at the Federal Reserve.

“The same people who spent a year lying to you that inflation would prove transitory are now lying to you about two matters of even more consequence.

“First, they are deceiving you by giving the impression that their rake hikes are taking real interest rates out of unprecedented negative territory.

“Second, they are falsely making you think their actions will meaningfully phase out inflation with a ‘soft landing’ — econ-speak for a deceleration of economic growth that doesn’t turn into a proper recession.”

Lowe criticized the System’s tiny interest rate increase:

“Let’s start with the Fed’s first rate hike since 2018. Despite the Fed slow-walking its monetary tightening campaign, it sorely disappointed when it settled on a rate increase of a mere 25 basis points instead of a full half percentage point.

“This caused uncertainty for investors and caused consumers to register inflation expectations of 6.6% over the year — a record high, according to the New York Fed.

“Even Paul Krugman, of all the inflation doves, has conceded that this is setting the stage for a return to the 1970s nightmare of stagflation.”

Lowe further suggested that the rate hike should have been higher and that the Federal Reserve itself knew it should have increased it more, but chose not to do so because of…Russia:

“With producer inflation in double digits and consumer price index inflation likely to follow, it seems clear that the Fed’s quarter-point hike was not nearly enough.

“And yes, the Fed knows it.

“Just take the minutes from the March meeting: ‘Many participants noted that — with inflation well above the Committee’s objective, inflationary risks to the upside, and the federal funds rate well below participants’ estimates of its longer-run level — they would have preferred a 50 basis point increase,’ the Federal Open Market Committee recorded.

“‘A number of these participants indicated, however, that, in light of greater near-term uncertainty associated with Russia’s invasion of Ukraine, they judged that a 25 basis point increase would be appropriate at this meeting.’”

Lowe pointed out the consequences of the System’s decision:

“Today, we have a much lower unemployment rate, a much higher job vacancy-to-unemployment ratio, and much higher wage inflation.

“Furthermore — it’s a much less fashionable objection — is the sheer size of our money supply and the Fed’s long-term insistence on quantitative easing. We spent 10 years printing money like it grew on trees, only to find ourselves cursed with the predictable consequences.

“So the Fed is lying to you. It is not making a mistake or being naive in its optimism. Its governors are telling you new falsehoods in hopes of prolonging the time they borrowed by telling earlier falsehoods.”

Two years, Mark Nestmann, founder of The Nestmann Group, warned:

“The inflation lie also won’t end well. The US government now has a national debt approaching $23 trillion and at least an additional $200 trillion in unfunded obligations.

“There’s no way these obligations can ever be paid off; not even close. Lying about the inflation rate can delay the day of reckoning, but it can’t be postponed forever.

“When it comes, it will start with a deflationary spiral (in at least the official CPI) that the Fed will sacrifice the dollar to stop, probably with negative interest rates of -5% or lower.

“A dollar collapse could lead to a hyperinflationary depression and the worst economic crisis anyone living today has ever experienced.”

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