Within days of each other in March two Northeast Ohio legends passed away: Michael Stanley and Joe Tait. If you’re from this area you know who they are. If you aren’t, you may not. Both men became familiar to us via the radio; Stanley was a rocker, while Tait was a talker. “Michael Stanley Band” (MSB) broke attendance records at local venues in the early 1980s but never caught on nationally, which is still hard to understand. Tait was the radio play-by-play announcer for the Cleveland Cavaliers for the better part of four decades – and it’s difficult to believe anyone ever did the job of calling basketball games better than he did. What the two men had in common, in addition to talent, was humility, unpretentiousness, and approachability, which perhaps explains why they were so beloved.
Listen to me and you won’t be regrettin’
Humility might be lacking at the Federal Reserve (the “Fed”), considering its list of goals, role in the economy and confidence in its own abilities continue to grow. The Fed not only kept its foot on the gas in the first quarter but vowed to continue doing so for years to come – or until unemployment falls to a satisfactory level. Chairman Powell has assured the public that the Fed will act quickly enough to ward off inflation, even though 1) their approach has changed from acting in advance of such a threat to waiting until it has already happened, and 2) there are plenty of signs of inflation of not only goods and services but in the prices of items that fall outside the traditional measures. The Philly Manufacturing Survey Prices Paid Index climbed to its highest level in over 40 years. The prices of several commodities have spiked. Housing values have taken off. Junk bond yields dropped (meaning prices rose) below 4% for the first time ever. Stock prices of unprofitable companies skyrocketed in recent quarters until finally cooling a bit recently. Collectibles and something called non-fungible tokens are also red hot.
You say you’ve got your reasons, but I need more
It’s questionable at this point how much benefit there is to the economy from the Fed’s large asset purchases and even its maintaining interest rates near zero. The economic downturn was caused by a pandemic and not a decline in animal spirits, so spurring individuals and corporations to borrow at low rates likely isn’t having the same effect that it had in past downturns. There is also a sensible theory that all the Fed’s purchases of government debt are reducing the amount of high-quality collateral in the system that acts as the grease for everyday economic activity. Then there are the various side effects that result from these Fed policies. Powell has stated that the Fed isn’t concerned about asset bubbles – while it continues to pursue policies that inflate them.