Taps Coogan – April 30th, 2021

Enjoy The Sounding Line? Click here to subscribe.

Former Fed Board Nominee Judy Shelton, who was recently passed up on for a spot on the Federal Reserve Board, recently spoke with CNBC to warn that ‘groupthink’ at the Fed should be concerning investors much more than it is.

She notes:

“Transitory is another one of those vague words that doesn’t really have any meaning behind it. I think the problem with the Fed’s massive intrusion into credit markets is that price discovery really has become obscured. In a free-market economy… you use price signals to indicate the optimal use of investment capital…”

“What’s really striking to me, is that (questions about the risks of excessive policy interventions) aren’t being asked or voiced by central bank officials themselves. That’s why I am concerned about a certain uniformity of opinion or groupthink. It turns out that during these extraordinary times, when we’re really experimenting with monetary policy, we threw everything but the kitchen sink at it last March…., it was an emergency operation, and yet throughout the Federal Open Market Committee meetings we’ve had since then, we have them eight times a year and another three this year, not a single time has a member of the Board of Governors registered a dissent in voting for the monetary policy action… The governors always vote in lockstep with the Chair… Maybe they don’t want to send mixed signals to the market, but I don’t think it’s because they’ve always been right… It’s comfortable to have consensus but it doesn’t mean it’s always correct.” 

It’s an open secret that there is no intellectual diversity at the Fed Board, let alone any actual hawks. Dissenting votes, which were rare before Covid, are now non-existent. For the Fed, the unimpeachable virtue of endless stimulus is simply settled science. 

Judy Shelton was passed-over for a spot on the Fed precisely because she would have reminded people that these issues are far from settled.

Would you like to be notified when we publish a new article on The Sounding Line? Click here to subscribe for free.