In my world (i.e. financial services), everyone is sure they are smarter than the Fed (especially Ben Bernanke and Janet Yellen). If I had a dollar for every utterance (in print, at conferences, by TV pundits, etc.) about how stupid these two people are, I would be a rich man. My suggestion is that you give as little credence as possible to these “much smarter” experts.
The fact is we are a long way into a slow recovery from the financial crisis. It has been slow and arduous, but…..we have at the very least not sunk into a very, very deep hole. The crisis of 2008-9 had the potential to rival the Great Depression. To avoid that, the Fed has steered us through unexplored waters. Yes, quantitative easing and perpetually low interest rates are not something we have experienced and…there are dangers to be sure. How do we unwind from this period? I don’t have the answers and I recognize the dangers that may lie ahead. My question is-should we trust the Fed to try to figure this out or “the experts” who are so sure they are idiots.
Well, the Fed has pretty much been able to keep our economy on the Goldilocks path (not too hot, not too cold, and just right). We would all like to have more robust quicker growth, but…..the path we are on has worked and I would not predict that either path of the critics would have worked. Most of the conservative folks in the financial services world would have chosen a path with far more austerity and far less easing. Would that have worked or would we have slipped into a depression. We can’t really know, but….there is an argument to be made that we would have slipped into a depression. The smaller progressive side would have done far more easing, far more stimulus, and far bigger deficits. These neo-Keynesians (think Paul Krugman) claim we would have far more robust growth. Would that have been the case or would we have produced a hyper inflationary result that could have made even Ron Paul’s prediction of paper currencies demise seem possible? Again, we can never know, but…the possibilities of dismal results are certainly there.
What we do know and can evaluate is how the Fed policies have worked so far. They have steered us through the abyss and we seem to have survived. The economy is creating jobs, inflation is in check, and interest rates seem poised to begin a slow ascent towards normal. I am not telling you that we have no risk of calamity as we move forward. We are in uncharted waters and getting back to “normal” has many perils and challenges. I am just saying that I will take the Fed as my ship captain based on their performance and pass on every pundit who is sure they are so much smarter than the Fed. Until proved otherwise, the folks at the Fed are…..the smartest ones in the room.
By Ted Schwartz, CFP®