Based Underground is now a conservative news aggregator AND curated newsletter.
(Mises)—Chairman of the Federal Reserve, Jerome “Jay” Powell, recently sent mysterious shock waves into financial markets with comments that suggested that Fed rate cuts might come sooner than expected.
Stock and bond markets took this as a good sign. They were already in a Santa Claus rally and broke out to new highs for the year. The interest rate on ten-year government bonds, which had already fallen by almost 1 percent since October, threatened to break support and go even lower. Financial journalists were all smiling with exuberance talking about the “Fed’s pivot.”
However, so far, this is just talk of a Fed pivot, not the actual Fed pivot, and its talk about the suggestion of a possible pivot. Most importantly, it’s all just talk that is positively goosing markets in the direction that Jay Powell wants: gains in stock and bond prices and lower interest rates in the economy heading into an election year. Investors, governments, and incumbent politicians love it. Incumbent politicians hope it all lasts past election day and they usually get their way.
From the Fed’s position, this will help them maintain three things:
- Their “higher for longer” sloganeering,
- The “soft landing” scenario,
- And most importantly, the Fed’s effort to reestablish its reputation, which was tarnished by their claim that the double-digit inflation from last year was only “transitory” as well as their tarnished image as a white knight, or economic savior, that is always ready, willing, and able to save the system.
I must admit that incumbent politicians usually get their way in election years and that they get unusually cooperative and bipartisan when it comes to election year politics. I’ve also admitted on previous episodes that the worst of the next economic crisis will probably get papered over until after the next election, especially the call of an official recession.
However, that is still going to be a tricky maneuver this year, given the contractionary and recessionary condition in the US, China, and most of the world. Especially with the European Union and New Zealand already slipping into recession.
I will do a recap of the economy in the next episode, but this episode will concentrate on longer term historical experience. This experience points in the general direction of an economic crisis ahead. It certainly does not point to the rosy outlook that markets seem to see.
We start this analysis with the historical experience regarding the Fed’s business cycle in the US economy during the post–World War II era. This is the period when the US dollar is the preeminent world currency, the US economy is the world’s economic superpower, and the Fed is the most important central bank in the world and the primary driver of world business cycles.
The first pattern that emerges is that unemployment hits a cyclical low just prior to official recessions and economic crises. Labor markets look unusually good just before they become very bad.
The second pattern that emerges is that the Fed reacts to bad economic conditions by cutting the federal funds rate, which is the base policy interest rate in the economy. This is when the Fed poses as a white knight, saving the economy, when in fact it caused the problem in the first place.
From World War II to the new millennium, the Fed’s rate cutting pattern was generally coincidental with recessionary periods in that the cuts started to occur during periods that would later be officially labeled recessions.
From 2000 to the present, the Fed’s rate cutting started to take place in advance of the official recession periods, preemptively, like they knew something was coming and were taking preemptive measures.
With no noteworthy exceptions, historical experience shows a lockstep linkage between recessions and the Fed changing policy in the direction of cutting its policy interest rate: the federal funds rate of interest.
I want to emphasize this: this change of policy of lowering interest rates is the “Fed pivot” everyone is talking about. However, this Fed pivot has historically ushered in bad economic times for most folks.
Of course, after they have overdone this policy of cutting interest rates and created an artificial expansion in the economy, possibly a stock market bubble, there is the other type of Fed pivot when they begin to raise rates again to supposedly to curb the higher rates of price inflation they have caused in the economy. The only other possible case is the Goldilocks scenario of a soft landing, but we don’t have historical experience to discuss that situation.
A stable stock and bond market could mask worsening conditions in the economy in 2024. So could very low unemployment rates that have been caused in part by the large reduction in the labor force caused by covid policies. A future article will explore some of the possible excuses that might be used to explain away the failure to achieve the soft landing and to set the stage for the “white knight.”
About the Author
Mark Thornton is the Peterson-Luddy Chair in Austrian Economics and a Senior Fellow at the Mises Institute. He is the book review editor of the Quarterly Journal of Austrian Economics, and has authored seven books and is a frequent guest on national radio shows.
Mysterious “Skyquakes” Are Causing Strange “Booms” in the Sky, and Scientists Have No Explanation
by Michael Snyder
(End of the American Dream)—What is causing the extremely loud “booms” that people are hearing in the sky all over the world? We are being told that “skyquakes” are responsible, but scientists have no idea why these “skyquakes” are occurring. In some cases, the “skyquakes” cause such powerful shaking that…
The Biggest Sale on Long-Term Storage Beef EVER
by Sponsored Post
Let’s cut to the chase. Prepper All-Naturals is offering an unprecedented 40% off for it’s “Beef Steak” survival bags with promo code “steak40”. With a 25-year shelf life and a single ingredient (beef, of course), our most popular product is available for a very limited time with the biggest discount…
Seattle Is Ordered to Stop Blocking Illegal Alien Deportations in the Most Hilarious Court Decision Ever
by PJ Media
A federal court has just pooped in the oatmeal of the West Coast, Messed Coast™governors and local election officials suffering from acute cases of Trump Derangement Syndrome who think they can stop illegal alien deportations. And after this hilarious and thorough legal takedown from the 9th Circuit Court of Appeals,…
Illegal Alien Terror Suspect Found Dead in Cook County Jail Cell
by Slay News
An Islamic illegal alien has been found dead in his jail cell after being arrested on terrorism charges. According to CWBChicago, 22-year-old Sidi Mohamed Abdallahi was found dead at the Cook County jail in Illinois on Saturday. Abdallahi was arrested on felony terrorism and hate crime charges in October. He…
Trump’s Wild Bunch Is Ready for Action
by Frank Miele
If for no other reason than that it will elicit fear in the hearts of autocracy-phobics, I propose that Donald Trump’s second-term Cabinet be known as “The Wild Bunch.” The name is best known as the title of Sam Peckinpah’s classic 1969 western featuring a colorful cast of aging outlaws…
FAA Issues Flight Restrictions Over Questionable Drone Activity Near Trump’s Bedminster Golf Course
by Just The News
The Federal Aviation Administration (FAA) on Tuesday said that it has issued two flight restrictions on the area surrounding President-elect Donald Trump’s Bedminster golf club in New Jersey, following questionable drone activity. The drone sightings were first reported on Nov. 18, but have continued into this week, according to Fox…
Ex-FBI Agent Convicted for Stealing From Jan 6 Defendant During Raid
by Trending Politics
A former Houston-based FBI agent has been convicted of stealing valuables and cash while conducting searches. In one instance, the agent stole cash and silver bars from a non-violent January 6 defendant’s home. Nicholas Anthony Williams, 36, was indicted on January 31 in the Southern District of Texas. Williams, who…
Democrats, Media Elite Urge Biden to Pardon Trump’s Alleged ‘Enemies List’
by Breitbart
President Joe Biden should issue preemptive pardons to his political allies and those deemed to be on President-elect Donald Trump’s alleged “enemies list,” Democrats and their media allies believe. Delivering a preemptive pardon indicates an admission of guilt, although Democrats claim a preemptive pardon would only be intended to block…
Fani Willis Forced to Release All Communications With Jack Smith, J6 Committee
by Trending Politics
The Fulton County Superior Court has ruled against District Attorney Fani Willis, ordering her to disclose communications with Special Counsel Jack Smith and the House January 6 Committee. The decision, announced on Tuesday, follows a lawsuit brought by Judicial Watch, a conservative watchdog group, which accused Willis of violating Georgia’s…
Lindsey Graham Is the Warmongering NeoCon Leading the Charge to Upend Pete Hegseth
by JD Rucker
Pete Hegseth represents a shift away from the wokeness that has infected the United States military. This is possibly the biggest reason President-Elect Donald Trump tapped him to be the next Secretary of Defense and the vast majority of Republicans on Capitol Hill can support this, at least for the…
‘Where Are Black Democrats?’: Charles Payne Tells Personal Story to Call Out ‘Huge Double Standard’ of Biden Family
by Nicole Silverio, DCNF
(DCNF)—Fox Business host Charles Payne called out the alleged “huge double standard” of President Joe Biden’s family Tuesday by revealing that his brother, who struggles with a crack addiction, is currently serving a jail sentence. Payne said his brother, who is getting out of jail on Friday, is likely one…
Zelensky Admits Ukraine Can’t Retake All Its Land: ‘We Must Seek Diplomatic Means’
by Breitbart
Ukrainian President Volodymyr Zelensky conceded in an interview on Tuesday that Ukraine does not have “enough forces” to restore sovereignty over Russian-occupied Crimea and “must seek diplomatic means” to end the Russian invasion and regain its land. The state-run Ukrinform outlet reported that Zelensky described Crimea – which Russia colonized…
Ultra-Processed Foods: How Bad Are They for Your Health?
by Olivia Cook
(Natural News)—Despite the serious health risks associated with eating junk food, they remain the most consumed food products in many countries, particularly developed ones. But a review published in The BMJ, which studied 9.8 million people, warns that eating a lot of ultra-processed foods can increase your risk for 32 diseases. Among these are heart…
“Already Pretty Far Down the Line”: The Container Store Could File for Bankruptcy as Soon as Next Year
by Tyler Durden, Zero Hedge
(Zero Hedge)—As the retail apocalypse that started with Amazon and e-commerce continues, the latest victim is The Container Store. The retail giant could file for bankruptcy as soon as next year, according to the New York Post, who said the retailer is blaming its recent descent on “a weak housing…
Mysterious ‘Car-Sized Drones’ Over New Jersey Prompt FBI Investigation
by Zero Hedge
Several weeks of mysterious drone swarms over the skies of one New Jersey county near the military research and manufacturing facility Picatinny Arsenal have sparked concerns among residents and prompted an FBI investigation. “It’s kind of unsettling,” Mike Walsh, a Morris County resident who has spotted the drones on numerous…
UNESCO’s New Mission: Train Influencers About Combatting Online “Misinformation”
by Reclaim the Net
The UN Educational, Scientific and Cultural Organization (UNESCO) is now incorporating teaching influencers how to “fact check” into its activities. UNESCO claims that influencers have become “primary sources of news and cultural information” around the world – which prompted it to carry out a survey into how these online personalities…
