Submitted by Taps Coogan on the 12th of April 2019 to The Sounding Line.

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Grant’s Interest Rate Observer founder and editor, Jim Grant, recently spoke with CNBC’s Rick Santelli about the persistent ‘problem’ of low inflation and the Fed’s paradoxical role in its perpetuation.

 

Rick Santelli:

“Is inflation dead in your opinion, Jim Grant, or is it just hibernating a bit?”

Jim Grant:

“It’s resting. But you know, the Fed, in a way, kind of a funny paradoxical way, has been chasing its tail. Now, the past ten or so years has been a time of great credit formation. Everyone is borrowing and lending. Corporate debt is way up… If you look at the restaurant business, huge boom in restaurant construction at, of course, very very easy credit conditions. And what this leads to finally today is ten chicken nuggets at Burger King for $1.49. Now that is an anti-inflationary problem for the Fed but it was the very interest rates that the Fed imposed that helped to bring on this so-called problem. Actually, for consumers it’s not a problem…”

Rick Santelli:

“…Free markets or Fed markets? Many were upset that the Fed and all central banks became Goliaths of the Universe… And now… we’re almost at all time highs and they’re calling for the same Fed that is now ‘data dependent’ to start managing interest rates again. How do you see it?

Jim Grant:

“I’d say we need free markets, of course. Except, it’s not quite ‘of course’ these days… It’s as if we were watching a Cubs game for example…, and everyone was talking about the umpires. They could not stop marveling at the umpires and what they might be thinking, what they might be doing… So we are preoccupied by the people who make the rules and who change the rules and who change the value of the currency within that set of rules. And I think we will arrive at a very good place when no one knows the name of the Chairman of the Fed. That would be a fine thing. As it is now, that name is omnipresent and the Fed itself is certainly too much with us…”

As we recently noted, over-active central banks are transforming markets into little more than transmission mechanisms for monetary policy. The whims of the referees have become more important than the actual game.

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