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2020-2022 Fed Policy's Impact on Markets

  • In the wake of the Fed’s Sept, 2022 announcement of further rate hikes, Professor Jeremy Siegel gave a firey interview on CNBC about the Fed’s “poor monetary policy,” partially transcribed below. The general message was that the Fed’s current monetary policy is currently “way too tight.”
  • Responding to the a Tweet about the video, on 9/24/22 Elon Musk tweeted, “Siegel is obviously correct”
  • On 9/9/22, Elon Musk tweeted, “A major Fed rate hike risks deflation”
  • On 9/23/22, Michael Saylor tweeted, “The vast majority of public policy creates stagflation and there is little that you can do to change this. What you can do is buy #bitcoin and work hard to generate income so that you can #hodl until the rest of the world realizes that BTC is the best global store of value asset.”
  • On 10/6/22, Visual Capitalist posted the visual below, which clearly shows that the US Federal Funds Rate is rising faster than any other time in the past 35 years.

Transcription follows:

[00:06] Interviewer: What are your thoughts as we watch these lows of June at least be taken out from the Dow standpoint? And maybe in the days ahead we find the other major averages in the same precarious place?

[00:19] Siegel: Yea, certainly. You know Scott, I find it very amusing. A year ago, at that September meeting, when we had booming commodity prices, when we had housing prices rising at the fastest rate in post-war history, when we had all commodities going up at rapid rates, Chairman Powel and the Fed said, we don’t see any inflation, we see no need to raise interest rates in 2022. Now, when all those very same commodities and asset prices are going down, he sees, you know, stubborn inflation, that requires the Fed to stay tight all the way through 2023. It makes absolutely no sense to me whatsoever. Way too tight. We do not have get anywhere near that level to stop inflation because the inflation has basically stopped… they’re making exactly the same mistake that they made on the other side a year ago.

[…]

[02:28] Interviewer: …If they continue to do it, what does it mean for stocks?

[02:33] Siegel: You know, until he sees the light, and says, you know what, I don’t think we have to be so tight, you know, until that happens, you’re gonna still have pressure on stocks…by the way, next Tuesday, we’re gonna get the monthly money supply data, which is gonna show the greatest decline in 5 months that we’ve had in the post-war period… What does a record decline in the money supply mean?

[…]

[04:53] Siegel: I am very upset. Yes, I am. Its like a pendulum. They were way too easy, as I’ve told you and many others, through 2020 and 2021, and now, oh my god, you know, we’re gonna be real tough guys until we’ve crushed the economy. I mean, that is just, to me, absolutely… Poor monetary policy would be an understatement.

The following chart is the M2 Money Supply, according to the Federal Reserve, over the past 35 years.

M2 Money Supply, according to the Federal Reserve, over the past 5 years. M2 has been flat over the 6-month period from February, 2022 until August, 2022 (\$21.71B and \$21.71B, respectively). Since January, 2000, the average six month increase in the M2 Money Supply has been roughly 3.5%, so the past 6 months have been very unusual.