The Downside of Fed Jawboning

Oil hits $115, highest since May, on supply concern | Reuters.

There’s a saying in Wall Street about monetary policy: Don’t fight the Fed. The corollary to this statement is that you should frontrun the Fed. Monetary policy pumps up the financial markets stimulates consumption in the present at the expense of future consumption. Economic conditions certainly look better in the short-term with rising markets and greater consumption, but these gains are illusory. When the easy money disappears, so do the gains.

Easy money lifts the price of oil, which really raises the price of everything. Consumers, then, receive less oil and everything else due to this policy. Monetary easing is in the interests of the rich and powerful and to the detriment of everybody else.


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