Arthur Burns is the most reviled man in all of economics and finance – and it is for good reason!
Did he run a Ponzi scheme? Nope. It was worse. Financial fraud? Worse. Axe murderer? Nope – way worse. Was he a pedophile? Nope. Worse still.
This is what he had the audacity to do – and – I must say that it is very difficult to even type this: He… he…lowered rates before inflation was in check!
I know, I know… it is awful, and I am sorry to have even shared this.
Arthur Burns was the Chairman of the Federal Reserve during the 1970s when America experienced its worst surge of inflation in history (you can tell he’s very smart because he’s holding a tobacco pipe in this photo).
He allowed the Fed Funds rate to rise and fall in response to recessions, but many believe he should not have cut rates when he did, despite weak economic signals, because that is what allowed inflation to flare back up and get out of control.
In sharp contrast, the famous Fed Chair who followed Burns, Paul Volcker, allowed the Fed Funds Rate to climb to 19% – absolutely crushing the economy.
The early 1980s saw one of the worst recessions of modern times – and, while America burned, Mr. Volcker sat idly by smoking his cigar and not lifting a finger.
As a result, Mr. Volcker is now held in extremely high esteem as the man who finally broke the 1970s inflation – and Mr. Burns is deemed an utter failure.
Jerome Powell is terrified of having an Arthur Burns legacy.
So, he’d much rather push the U.S. into a severe recession than risk cutting too soon – and re-igniting inflation.
Yes, recessions and all the job losses and suffering are bad, but as Mr. Volcker’s legacy has shown us – Americans forgive Fed Chairs who cause horrible recessions, but we don’t forgive Fed Chairs who ignite inflation.
This is a point Brent Johnson made on a recent podcast.
So, this is a major reason why the Fed did not cut rates on March 20th, despite all the signs of economic weakness, e.g. layoffs at levels not seen since the 2008 GFC; looming banking/commercial real estate crises; record levels of credit card balances and charge-offs; and negative savings rates.
Danielle DiMartino Booth highlights all of these issues on her X account, in case you’d like to see some actual data (rather than the assertions of a mortgage guy 😊).
So, When Will The Fed Cut Rates?
In this post on X, renowned analyst and fund manager, Kyle Bass, says they “will begin cutting rates in June.” This is after he explains that the Fed and Treasury have been propping up the economy with “liquidity injections” (why stock/asset prices are so high) that will stop working prior to June.
