The three unanswered questions about Fed and Powell that “truth” the problem, the dollar, banks and inflation

In Jackson Hole last Friday the head of the Fed, Mr Jerome Powell, managed to escape, without saying anything new and having “the whole pie and the dog full”. He announced what everyone expected, i.e. the time has come for “reduction of interest rates”. It satisfied the expectations of the markets, with the stock markets taking on and the financial markets relaxing the pressure on the financial system. But the problem is that he left three major questions unanswered, which markets will sooner or later demand answers. Mr Powell did not say how much interest rates will be reduced, i.e. what the target interest rate is on this route to reduce them, nor how quickly or slowly this will happen. But most importantly, he did not say what hierarchy the Fed defines the conditions to answer these two questions. Will it be inflation and its evolution, will it be the slowdown in economic activity, will it be the stability of the financial markets? She said nothing about what is the most important criterion for the Fed in order to define its next moves. Can Fed give her these answers? The truth is that it is not at all certain that it can do this for a simple reason: the November elections. In them it is “played” by the… head of Mr Powell (which is the least important), until how – with which policies – the new government will address the big issue of the US budget deficit, which continues to increase as does the rate of expansion of public debt. Already the latest figures show the deficit to exceed 8% of GDP and public debt to increase by a trillion dollars (!) every three months, having totaled over $35 trillion. This is the biggest deficit out of war and pandemic in the United States. And only this size “explains” how and why the American economy – election – continues to have positive growth rates. So, can November give answers to questions that Mr Powell left unanswered? This remains doubtful as Fed’s attitude will then depend on what policy the new White House host will announce, what will be the reaction of the very strong banks, what Wall Street’s reaction will be. But most importantly what the reaction of US debt holders will be. Owners located in the four parts of the horizon and financing the American debt markets as demonstrated on August 5, with currencies that in turn depend on the dollar, i.e. the consequences of the internal crisis in the US… In other words, what Mr Powell did not answer on Friday at Jackson Hole, are issues that tie the dollar’s Gordian bond to the international economy and “what” moves it and affects it. These are the real “data” that the central bankers expect to see each time to determine their movements for the cost (interest rates) and availability (liquidity) of money. The other ‘data’ of the statistical services seems to be the pretensions at a time, since as shown in both figures which supposedly determined the attitude of the Fed, these figures (the number of new jobs and consumer expenditure) have been drastically revised only one month after their official publication. And they were drastically revised negatively (much lower consumer spending, like new jobs), but no one paid attention and referred to their actual size. So for now, Mr Powell is waiting on November 5th to see what he will do (after the first interest rate reduction on September 18th), but then no one can predict the reactions of Wall Street, but also the borrowers of American debt. Especially these latter are the ones on which the financing of the American economy and the stability of the financial system depends. Let us not forget the recent suffering of Great Britain in 2022 when Mrs. Tras dared to oppose them and found herself in the waters of the Thames before he even knew it, with the Central Bank of England trying to save the pound. These Feds can’t in any way take ’em… condra. Because of them – and the odds of the assets they hold – depends on the dollar, that is – still – the international monetary system. And let us not forget that the value autonomy of the dollar has been cancelled since 15 August 1971 when its stable relationship with gold ceased. This value autonomy of the dollar was supported in the ’80s by the introduction of the credibility of the institution which listens to the name “Independence” of the Central Bank. But this very “independence” is what seems to be now being questioned behind Fed’s inability to define this decision … regardless of fiscal policy. Especially in the United States with the terrifying debt that continues to grow uncontrollably.