“The most inappropriate monetary policy that I’ve seen maybe in my lifetime.”- Paul Tudor Jones on the Federal Reserve via CNBC

The Federal Reserve has three mandates per their Congressional charter. They are to effectively promote maximum employment, stable prices, and moderate long-term interest rates. The Fed has met the first goal, employment is largely maximized. As far as the other two, the Fed is running monetary policy consistent with destabilizing prices and doing it with interest rates that are well below moderate.

Why are they employing the “most inappropriate monetary policy” that famed investor Paul Tudor Jones has seen in his lifetime? Maybe the better question is, is such an aggressive policy, which purposely goes against their mandate, hiding something?

Fed Mandate Scorecard

To provide context to the questions, let’s review the three Fed mandates and compare their current standing to the past.

Maximum Employment

The unemployment rate is slightly above the average of the five years leading to the pandemic but over 1% below the longer-term average. The two alternative employment measures, which factor in job openings and those willingly quitting jobs, show the adjusted unemployment rate is well below the 20-year average.

Traditional measures of employment are essentially fully recovered from the pandemic. Alternative measures, such as those above, tell us the labor market is healthier than almost any time in the last 20 years.

Stable Prices

Inflation measured by CPI and the Fed’s preferred method, PCE, runs two to three times the rate of the last five and twenty years. Five-year market-implied inflation expectations are up to 2.90%, about twice that of the previous ten years. Consumer inflation expectations, measured by the University of Michigan, are nearing 5%, also twice that of the last ten years.

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