Dear Federal Reserve,
I write this letter to you as a concerned citizen, and as someone who has built a career in financial markets. You are doing more harm to the economy and to investor confidence than ever before. Not out of malice, but out of arrogance. Your role as an institution should never have been as expansive as it is today in a free enterprise system. The control over a nation’s monetary policy is a critical responsibility, something you well know going all the way back to 1913. Your purpose was to prevent banking crises and failures that could free capital. Your creation was designed to serve as insurance to the financial system, not to be a driver of it.
Originally, your mission hinged on damage control through the dual objectives of maximizing employment and ensuring price stability. Yet, over time, your scope expanded beyond merely overseeing monetary policy. You transitioned from reacting to economic shocks to, regrettably, instigating them by overestimating your capability to temper the economic cycles of boom and bust. Worse, you adopted an unfounded confidence in your ability to shape the future.
The belief in your omnipotence is misguided. No one knows what tomorrow brings. Not Jerome Powell, not Joe Biden, not your hundreds of economists, and not AI.
Inflation was never transitory, even though you overconfidently claimed it was. Inflation was never defeated, even though you convinced market six rate cuts were coming this year. Your misjudgment echoes past oversights, such as the failure to anticipate the housing bubble and subsequent financial crisis.
You’ve given false hope that inflation is under control. That false hope has created dangerous complacency in financial markets, which is the precursor to substantial losses. Despite the “bull market” in market-cap weighted averages, many investors have not seen a return to pre-Covid-19 wealth levels once adjusting for inflation. This because of your complete mismanagement post-pandemic. Your interventions, while perhaps stabilizing in the near term, have widened the wealth gap, and sown the seeds of discontent across society.
Your communication strategy is terrible. You inherently create a false sense of confidence around the unknowable tomorrow. You have lost all credibility in fighting the inflation beast you fed. You are day-trading monetary policy dangerously with erratic forecasting. This pattern of behavior, of creating complacency and misdirecting capital allocation, has significant societal and psychological repercussions. It erodes the fabric of our financial culture and undermines the principles of sound investing.
We find ourselves on the precipice of another crisis, as inflation persists against a consumer who is unable to afford necessities, and as a currency crisis nears with Japan. All because of your failures not just on the policy front, but through the way you manage expectations.
Please, for the sake of long-term economic stability and investor trust, just shut up and let the market be the market.
Sincerely,
Michael.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
