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WASHINGTON, DC - APRIL 11: Stephen A. Schwarzman, Chairman, CEO and Co-Founder of Blackstone speaks ... More as US President Donald Trump looks on during a strategic and policy discussion with CEOs in the State Department Library in the Eisenhower Executive Office Building (EEOB) on April 11, 2017 in Washington, DC. (Photo by Olivier Douliery-Pool/Getty Images)
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The Federal Reserve is irrelevant. Market signals continue to confirm the previous truth while economists and pundits continue to follow what’s irrelevant in breathy fashion. In future decades and centuries, economic archaeologists will marvel that what was so unimportant was taken so seriously.
To recognize the Fed’s insignificance, all readers need to do is contemplate all the attention given the central bank by economists and pundits. They are literally following the rate fiddling of an outsourced-by-Congress, would-be price controller within the federal government. Think about that, and in thinking about it ask when price controls have ever correlated with accurate prices in concert with an abundance of the market good controlled.
To think about what the Federal Reserve aims to do whereby it would price control the most important price in the world other than the dollar is to know that the Fed controls nothing. Evidence that it controls nothing can be found in the happy truth that the U.S. economy is the world’s biggest and most dynamic. Such an economy would never achieve the descriptors from the previous sentence all the while having the cost of credit within it controlled by central planners.
After stating the obvious about the U.S. economy being too large to be centrally planned, we can just look around us. The financial services industry in the U.S. isn’t gargantuan because the Fed is powerful, but once again, precisely because it’s not.
Take the recently reported news that private equity behemoth Blackstone Group recently closed on an $8 billion commercial real-estate debt fund. Better yet, consider the Wall Street Journal’s description of the fund’s impetus: after 2008, “bank appetite for real-estate risk greatly declined.” Well, of course it did, and the reduced appetite for risk could be seen in banks and the Fed going to zero.
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