Do we want to be Japan?

“I need the Fed to shut up. I don’t trust the Fed at all. I don’t trust Jay Powell at all. Jay said everything that caused a tremendous selloff. You have got to start recognizing how powerful his words are.”
— Jim “El Capitan” Cramer, CNBC, on Thursday

I am in respectful disagreement with the condemnation of Fed policy by Jim Cramer and others.

To begin with, before criticizing the Jerome Powell-led Federal Reserve, market participants would be wise to look at where the stock market has come from and how equities are still valued.

The hue and cry about the recent market downdraft and the Fed are particularly revealing in light of the fact that even after the most recent downturn the market is up 13% since 2017, 23% since 2016, 34% since 2014, and 111% since 2010.

Powell only recently has brought rates to a neutral level (in real terms, adjusted for inflation), causing investors to freak out. That says a lot about both market participants and the underlying fragility of the domestic and global economies, as they, too, have become addicted to low rates. (Europe is nearing recession even though interest rates are near zero.)

Powell should continue doing the right thing, but slowly and carefully. A garden-variety recession is fine. A move down in equities is fine. Those things are normal and part of a functioning capitalistic economy. It is amazing and unhealthy that market participants seem to forget this cleansing role.

The challenge to the Fed chairman is how exactly to do the right thing, to thread the needle. This is not his fault. But any patient addicted to drugs must be weaned off of them slowly and methodically. Cold turkey will just kill the patient.

…click on the above link to read the rest of the article…