Submitted by Taps Coogan on the 15th of June 2019 to The Sounding Line.

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CNBC’s Rick Santelli recently spoke with Bianco Research President, Jim Bianco, about cratering inflation expectations and a Fed policy review which concluded that monetary policy should be much more aggressive in stimulating during slowdowns and quicker in normalizing policy afterwards.

Some excerpts from Rick Santelli and Jim Bianco

Rick Santelli:

“…We saw the inflation expectations in the University of Michigan (survey) really take a plunge.”

Jim Bianco:

“Not only take a plunge but the five-year ten-year forward is at 2.2%, the lowest ever in the 25 year history of the survey. Consumers expect less inflation now than they did at the depths of the recession in 2008, 2009. There is no inflation expected anywhere in this economy.”

“Last week they had the big (Fed) research meeting and one of the things that they argued is the what the Fed should do with policy is come early and hard and then cut and ease a lot and then pull out real fast. Don’t drag yourself in… If the economy is slowing and you want it boosted up, you come in hard and boost it up and then, this is just as important, you come out quickly….”

Rick Santelli:

“Even more important than that is this notion that it gets off this game plan that everything is cycled in such a way that the public says ‘well okay we are in a measured tightening or measured easing cycle, we will behave in a certain way. And that’s usually the underpinnings of the bubble.”

Jim Bianco:

“…Introducing a little uncertainty will go a long way toward reducing bubbles…”

First things first. The fact that this proposal sounds like a new idea is the ultimate statement on just how much mission drift has occurred at the Fed. This is exactly what the Fed is supposed to have been doing in the first place: provide stimulus quickly during times of acute recessions and remove it immediately after. The Fed was never supposed to be providing permanent stimulus. The problem is that the Fed never gets around to the ‘getting out quickly’ part of the plan because the robust recovery that the Fed wants to have before normalizing never really comes along. Ultra-accommodative policy simply doesn’t work as well as the Fed expects. We’ve all been living that reality for the last decade. As sure as the sun will rise tomorrow, the Fed will only execute on the first half of the ‘come in hard and then get out quick’ plan. Everyone knows it and it is why inflation expectations are the lowest on record. Nobody seriously believes the Fed will normalize policy, not even the Fed, which means that the overcapacity, mal-investment, and financial bubbles which plague the global economy and cause low growth and deflation are a permanent feature.

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