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This 2015 speech proves that when Jerome Powell and others claim that no one saw today’s high inflation coming, they’re wrong. Sure, I was about five years too early when I claimed the Fed would initially rationalize an excessive rise in inflation as being transitory, and what I thought might take place in 2016 didn’t happen until 2021, but that’s mainly because the election of Donald Trump helped enable the Fed to further postpone the crisis.
Also, my prediction that the Fed would not be able to successfully raise rates was substantially correct. Yes, they were able to raise rates slightly above zero, but those hikes were not sustainable and never approached normal levels. The fact that the Fed temporarily succeeded in gradually raising rates to 2.5% in late 2018 before reversing course and ultimately returning to zero in early 2020 does not invalidate my prediction.
The Fed’s current effort to normalized interest rates will also fail, unless the Fed finally does the right thing and refuses to reverse course despite a recession or bear market. The greater problem is that the five year delay, further enabled by a forth round of QE, which I forecast years before it started would exceed the size of the first three rounds combined, has greatly exacerbated the underlying problems. That means if the Fed finally allows the free market to correct its mistakes, the financial crisis its misguided and reckless monetary policy postponed for so long will be much wore.
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