A thank-you to Jerome Powell and our friends at the Federal Reserve for staying the course by raising the Fed Funds rate by a meager 0.25%.

The appropriate amount to show their seriousness regarding inflation and to not be too worried about the failure of two banks because of alleged mismanagement.

A relatively insignificant 0.25%, about 5% of the total increase over the past year.

The 0.25% might cause some bank securities holding to drop in value by 1 or 2%. No big deal.

Banks do not realize those losses until they sell securities.

The Fed is now allowing banks needing liquidity to collateralize loans with securities at 100% of face value. This allows banks to continue holding securities until their maturity date. Which is the exact strategy banks are supposed to do with their base capital.

So, they fight inflation, and do little damage to banks.

A double win for the Fed.

Inflation vs. Unemployment

Time for a flash visualization poll.

Close your eyes and imagine instantly polling 100 million working class Americans.

One question.

“Would you rather have 5% inflation and a job or 2% inflation and no job?”

I bet you see a vast majority picking the first option.

Well, Federal Reserve governors, these are the people you work for. There is no acceptable increase in unemployment to fight inflation.

Fortunately, it all does not need to happen at once. As long as inflation is trending down, the Fed can slow its roll.

The consensus estimate does not see the 2% inflation goal being met for 2 to 3 years, so why push it?

No need to lower rates yet, just maybe stop and take a deep breath. Chant om for a few weeks.

Slide through May and take action again in June.

Have your May announcement start with the phrase, “In the interest of working class Americans…”

Final Thoughts

There is a bias in reporting toward looking for the next recession. The scale is tipping so heavily in that direction, that maybe we will have one. But wouldn’t it be more useful to build on what is good?