Is the Federal Reserve Doing Enough for the Economy?

Transcript

Ken Fisher:

So, the recent vacillations associated with tariffs, perceptions of a weak dollar, perceptions of liquidity problems and volatility and long-term interest rates— all those perceptions have a lot of people thinking that the American central bank, Federal Reserve, has a greater risk of missing it—not getting it right, screwing it up somehow—than normal.

I don't know that I'd go there. They have a very large capacity to screw things up, and have forever. The the fact is, I've almost never been praiser of the central bank's monetary activities in interest rates and controlling the quantity of money.

I generally ascribe to the views of William McChesney Martin, who was the longest running head of the Fed ever—from the 1950s into 1968—who said, when you become the head of the Fed, you take a little pill and it makes you forget everything you ever knew, and it lasts just as long as you're the head of the Fed.

And then his immediate successor, Arthur Burns, for the next eight years, who was the best trained person up to that point in time ever in history to be head of the US Federal Reserve, and was a disastrous one, was asked after his time was over—why do so many things that you said you'd never do that didn't work out well? And he said, well, I took Martin's pill.

I think they pretty much all take Martin's pill—and Jerome Powell has actually done a better job than most in the post-Covid crisis world, screwing up pretty well during Covid, which is how we got the inflation that we got.

But, as it is, the Federal Reserve's main charter, going back to the Humphrey-Hawkins Act of 1974, is to balance stable prices with full employment. It's the same concern that everyone has today that the Fed's been addressing ever since then. Before then, all it was supposed to be focused on was the stable prices part. So, if you think of this like a teeter-totter, the one often works against the other, and there's nothing new for the Fed about that.

There's nothing about that that makes it different now than it's ever been before over that time period since 1974. We've seen many periods of very weak and very strong dollar; of very weak, rising and lowering long-term interest rates. There's nothing about this period that's particularly outside the bandwidth of the history of what the Federal Reserve has had to deal with many, many times before.

They always have the potential to screw up. They're pretty good at screwing up. They don't always screw up. And the reality is, just what they have to do— and this is the only real part that I've heard a lot of sympathy for— it's not that easy to do, because they don't have some perfect crystal ball, they can't really tell the way the world is going to work.

The people that work for them, as analysts and researchers, all have, basically, not 100% certain, but mostly, the same training and background. So, there's a lot of groupthink there, and it's all done kind of just feeling as they go. And as I've often said, the Federal Reserve, the board and the chairman tend to be more reactors than causers.

And you can see that in history—if you look at it, people tend to always ascribe to them way too much power and way too much vision, as if they know more than they actually know. It's a tough go, and I think they can screw it up now, but Powell's, so far, in the last couple of years, has been doing better than most heads of the Fed have done, and begrudgingly, I have to give him praise for that, and hopefully, he will now. Thank you much.

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