That Sound You Hear Is the Fed Breaking Something

The Federal Reserve’s (Fed) single-minded commitment to fighting inflation has been communicated so many times and in so many ways that the execution of monetary policy almost seems to be—dare I say—on “autopilot.” Whenever the markets seem to doubt their commitment, Chair Jerome Powell and other Fed officials quickly reinforce the message through their communications apparatus, including speeches, the Statement of Economic Projections, and media signaling.

We all should remember what happened the last time the Fed suggested that the future course of policy was predetermined: After Powell’s infamous reference to the Fed balance sheet reduction being on “autopilot” in a December 2018 press conference, stocks collapsed and the Fed was forced to backtrack from the statement, which marked the start of a policy pivot.


Scott Minerd joins CNBC to discuss opportunities for investors in a market beset by policy and economic challenges.

Some Fed policymakers seem to have learned their lesson from December 2018, which is why they are quick to invoke data dependency as a disclaimer to their messaging. Fed Governor Lael Brainard demonstrated a prime example of this when she said in a Sept. 30 speech, “Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target. For these reasons, we are committed to avoiding pulling back prematurely.” Two sentences later she added that the Fed will proceed “in a data-dependent manner."

While this caveat suggests that Brainard and her colleagues will be watching the inflation and employment data for direction, financial stability and market functioning should also be on the Fed’s radar. As I have stated before, the Fed will keep hiking until something breaks, and clearly the cracks are forming.