Blaming the Fed

Selective amnesia and analysts dying to be “right” is contributing to a flood of inaccurate articles seeking to blame the Fed.

I saw this in my Twitter feed this morning and I just couldn’t let it go by. It’s filled with the kind of half-truths and misinformation that builds an analyst’s career, unfortunately, but that doesn’t make it true.

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Here we go. According to this tweet, The Fed spent 12 years creating an “everything bubble,” a term so bizarre that it requires quotes. Oh, and the Fed didn’t spend 12 years creating this so-called everything bubble. Oh, and before we start pointing fingers, until THIS YEAR neither this analyst, nor almost any other was asking for the Fed to tighten monetary policy because the economy was teetering on a cliff and every bit of the stimulus was required to prevent the Great Recession II, or worse.

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Yep. For exactly, ONE MONTH, inflation has been a bit crazy. Too bad the graph they posted as “evidence” is so far zoomed out that you can’t see what really happened. Maybe they couldn’t find one that showed more recent events. Oh, wait! Here’s one.

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The crazy, reckless Fed that has been pumping up this 12-year everything bubble, has been ignoring years worth of high inflation data. Oh. I guess only a few months of high inflation data… well, that doesn’t fit our story. Oh, by the way, that red line? Inflation minus food and energy which at 5.5% is still high but, not 7% crazy high. Food and energy are generally considered more volatile than overall inflation, in no small part because energy prices are cyclical, often rising in the winter months like… say the three months at the end of the year… where that 7% is… you know… just sayin.

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It is true, and not just technically. And the reason we put very smart economists at the Fed is so that they can use these tools in a judicious manner and not go of half-cocked, like I don’t know, running around proclaiming a 12-year everything bubble is doomed to pop.

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Between late 2008 and mid-2014, the US economy teetered on the brink of catastrophe. Can any of you remember what happened in 2008? Wall Street had been creating its own unregulated bubble in the real estate market and it popped. The Fed rushed in to save the economy from a banking system collapse. — Those dates are weird too… Late 2008 to Mid-2014 is six years, not 12…

Hey, check out my Digit review.

The US Economy Goes Bust – 2008

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From NPR in 2008

Here is CNN noting that 5 other central banks are also slashing rates to stave off global economic problems.

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Fed enacts emergency interest rate cut – Oct. 8, 2008 (

Here’s another. That silly Fed injecting so much money into the economy…

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The weekend that changed Wall Street forever – Dec. 15, 2008 (

Next up… Investors scramble

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Professional investors often rotate from risky assets to safer ones, and vice versa. The rotation into and out of such assets is not a bubble. A bubble would be that there is too much money uncorrelated to real world economic conditions. If money is in the correct place, that is smart investing, not a bubble. Furthermore, here we go with the fallacy that investors are willing to take any interest rate as long as it matches the risk. This is not true. Hedge funds, for example, will not be satisfied with a 5% return on a savings account, and will continue to remain invested in growth securities regardless of risk because anything less than a 10% return, for example, is insufficient.

Also, if you think for one second that “average Americans saving for retirement” went into their 401(k)s to move their money from safe 2% interest rate bonds into riskier 5% bonds in pursuit of yields, you haven’t met that many average Americans. (This is what happens when you get to be an analyst after building up a clientele of people with a minimum of one million dollars of investable assets.) Average Americans saving for retirement either, chase performance, never change their investments, or sell when things go down too much. My entire financial planning career was a battle to get average Americans to stick to a well-diversified portfolio with annual rebalancing. Not one average American client, ever, came in and said, I’d like to take some extra risk in my low-yield investments in order to chase 4% in corporate bonds.

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Weird. James Gorman gets it, but Business Insider is using this as support of their position?

If Business Insider’s thesis is correct, and the Fed slowly withdraws money from the system, then the money in the “wrong” places would slowly move back to the “right” places. This is, of course, the goal of the Federal Reserve. The problem, is the opposite of what Wall Street is worried about. The Fed often moves too quickly, in effect popping the bubble in order to please a Wall Street full of inflation hawks who learned in Economics classes about the stagflation of the late 1970s and 1980s and have come to the conclusion that inflation is the worst thing that can happen, when in reality, recession and depression are the worst things that can happen.

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Tweet from 1/27/2022

This is the one that outraged me so much I couldn’t let it go. “Lost its nerve” — Holy selective memory, Batman!

For those of you with actual memories and not the 1984-Memory-Hole-style memory these guys are using, you might recall that every time the Fed even thought about raising interest rates some sort of geopolitical whack to the economy took care of any potential overheating of the economy. What follows is a year-by-year dunking on the idea that the Fed kept losing its nerve.

Don’t sell savings bonds to avoid taxes?

The Fed Loses Its Nerve?

How, about some real historical perspective, starting with the Fed raising interest rates continuously from 2016, until… Can you remember? It was a really long time ago, and it wasn’t that big of deal, so you might have forgotten all about it?

It’s Covid.

I know, I forgot about that too. (Yeah. That was sarcasm.) Here is a little something I like to call data.

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Federal Reserve Interest Rates

Oh, by the way, see that blue graph on the bottom. That is a graph of U.S. recessions. The taller the dark blue peaks, the bigger the recession. I suppose not raising rates in 2012 and 2013 was just a Fed too chicken to do what needed to be done? Go ask these guys, and even those inflation hawks if raising rates, or withdrawing stimulus, during a recession is a good idea. Even they will say no. So, when exactly did the Fed lose its nerve?

Was it 2010?

In 2010 the job market began to emerge from the most severe downturn since the Great Depression. U.S. employment is up, the layoff rate is down, and the average wage (after adjusting for inflation) has improved modestly. Progress toward full job market recovery has been achingly slow, however. The most striking feature of the past year has been the widening gap between the outlook for Americans who’ve held on to their jobs and their less fortunate peers who got laid off.

(emphasis mine)

The Top Economic Stories of 2010 (

Maybe it was 2011?

Stories of uncertainty and instability made economic headlines in 2011, but there may be reason for some optimism heading into 2012 as the economy has picked up some steam in recent months.

As 2011 ended we should have been celebrating a bipartisan deal to restore the federal government to fiscal sanity. Instead, we are bemoaning the lost opportunities of extreme partisan pig-headedness and hoping that 2012 will bring politicians to their senses before a debt crisis overtakes us.

While the U.S. financial sector has stabilized considerably, and the U.S. economy is growing again, the continued crisis in Europe threatens to halt that progress and choke off recovery

There is no one path to disaster that worries me in particular; the problem is that I could literally write out a thousand scenarios where the crisis explodes. It is reminiscent of the problems in the financial crisis in 2008

(emphasis mine)

The Top Economic Stories of 2011 (

Hmmm. I guess maybe 2011 wasn’t time for the Fed to get up its nerve. How about 2012? Well, this is from a December 2012 article looking forward to 2013. (If you need a memory jog, 2012 was the end of Obama’s first term, and Clint Eastwood was yelling at a chair about unemployment and the problematic economy… so maybe we don’t need a lot of data, but here you go anyway.)

The economy is still very far from full employment and monetary policy is dedicated to promoting expansion to restore it. If a too restrictive fiscal policy – falling off the cliff comes to mind – does not get in the way, it should succeed.

By the end of the year the recovery from the deep recession in 2008-2009 will be 3½ years old. The health of the job market, like that of the broader economy, is improving at a steady but comparatively slow pace. Jobless workers have seen improvements in their chances of finding a job, but wage and benefit improvements have lagged behind gains in worker productivity.

How Safe is the Economy Now? (

Looks like they weren’t worried about the Fed getting up too much nerve?

How about 2013?

The U.S. economy is mired in the doldrums. Five years after the declared end of the recession, the economy is operating well below capacity and has made virtually no progress in narrowing the gap between actual and potential GDP

A Failed Economic Recovery: Don’t Blame Consumers (

Eesh. “A Failed Economic Recovery” – That doesn’t sound like the right time for the Fed to get up its nerve.

We are running out of time here to call the Fed chicken. Remember, the Federal Reserve was raising interest rates and drawing down its balance sheet to remove that “excess” money from the economy all the way from 2016 until the coronavirus started shutting down entire countries. Surely, Business Insider doesn’t begrudge the Fed not cranking up rates in the middle of a pandemic?

Let’s get some Steve Harvey action going up in here. “Show me, 2014!”

The year 2014 was marked by some important transitions for the Federal Reserve. In personnel, Ben Bernanke stepped down as Chairman when his term was over at the end of January… In policy, The Federal Open Market Committee (FOMC) successfully ended its securities purchases, completing the tapering off of such purchases that started at the beginning of the year, and capping its securities portfolio at a mere $4.2 trillion at the end of October, up from $480 billion just seven years earlier. And, as the economy gradually came closer to the Fed’s interpretation of its Congressionally-mandated dual objectives of maximum employment and stable prices, it adjusted the way it characterized its intentions about holding its policy rate near zero. The issue facing the monetary policymakers in 2015 will be when to begin to raise policy interest rates, which have been close to zero since the fall of 2008 after the market panic that followed the bankruptcy of Lehman Brothers.

(emphasis mine)

The Fed: QE Done, Lift Off to Come? (

Yes! Finally, the Business Insider guys may be right about the Fed needing to “ease up on this firehose of cash or started to raise interest rates,” except, that is exactly what the Fed is doing. Slowly, steadily, transparently, correctly, removing stimulus.

I guess the Fed must “lose its nerve,” in 2015, or this entire characterization by Business Insider is false.

In 2014, the Fed already had begun to step back from the unconventional policies by ending its purchases of Treasury bonds and mortgage-backed securities. And it had laid out the criteria for the next step—raising rates—when it had seen some further improvement in labor markets and was reasonably confident that inflation would rise to its 2 percent target over the medium term. In the view of the Federal Open Market Committee, those criteria were met by its December meeting, and the FOMC announced a quarter-percentage point basis point increase in the target range for the benchmark federal funds rate, raising it from 0-0.25 percent to 0.25-.50 percent.

After lift-off at the Fed, a focus on trajectory (

Well, you say, why did they wait until December? There was a good reason. Can you remember? I’ll give you a hint…. China.

It took five years for people to become really worried over China’s slow-motion economic deceleration. The freak-out finally hit global markets in August. Between Aug. 10 and Aug. 25, the Dow Jones industrial average plunged 11 percent on fears that everyone had underestimated China’s troubles and their impact on the rest of the world.

What were the top business stories of 2015? – CBS News

The Fed never lost its nerve. That whole contention is false. The Fed did what it could, right up until Covid demanded action.

Is There a Bubble and Does the Bubble Have to Pop?

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As the Fed slowly withdraws stimulus from the economy in a transparent way, the investors above who so rationally rotated their money into riskier assets could rotate their money into less risky assets. Considering a wide range of investors exists, one would assume that not all of them would be triggered to move their money at once.

In fact, in a purely rational investing world, a slow withdrawal of stimulus from the economy, one would expect a slow change in where money is invested. The trick is not triggering a stampede among skittish investors. You know, the kind of thing that this series of tweets is trying to do. Fear could, but does not have to, trigger the bubble to pop. The Fed’s goal is to slowly allow for the reallocation of assets. If it works, you could see a reasonable stock market downturn, a reasonable increase in interest rates, and maybe even a few years of sideways markets.

Or, you can go for maximum clickbait.

When Your Clickbait Undermines Your Previous Tweets

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Oh, hey. What do you know. “…the decade of weak growth..” Looks like they knew all along that the Fed didn’t lose its nerve. It was a decade of weak growth. Unsupported accusations get more clicks, I guess.

Of course, you could go ahead and click these inflamatory tweets and read their thoughts.

But, you’ll have to pay for it… and thus, the clickbait.

Happy Thursday.

About the Author

Brian Nelson – Brian is a freelance writer and web developer who spent several years as a financial planner. More importantly, he is getting pretty old, not so old that he can’t remember, but rather he’s old enough that he remembers seeing a lot of this before. He says that it is true that history repeats itself. This article is for informational purposes and is not investing advice. Brian is not a financial advisor and does not hold himself out as one. Brian needs to get off his duff and finish building his email list because he is developing a nice following of other people who won’t put up with exaggerated baloney for clicks. As of this writing, Brian does not own any of the securities mentioned, although that may change at any time. Consult your financial advisor or tax professional for advice specific to your situation.

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