One of the myths found in economics textbooks and perpetuated by some economists is that the Federal Reserve (Fed) is politically independent, which prevents excessive inflation. One of the arguments supporting Fed independence is that members of the Board of Governors, the Fed’s decision-making body, serve 14-year terms. Thus, a President will be well into

With inflation slowing to 3.1% as of writing this column, Jerome Powell and the Federal Reserve are likely to get credit for taming the 40-year high inflation we have experienced over the last couple years. Similarly, Paul Volker and the Federal Reserve of the early 1980s got credit for “breaking the back” of the 1970s

The Federal Reserve has increased the federal funds rate from 0% to 5% to reduce the inflation they created during the pandemic. The federal funds rate is the interest rate set through monetary policy and is at a 16-year high. Members of the Open Market Committee, the committee that sets monetary policy, anticipate at least

The deal recently reached by Congress and President Biden suspends the debt ceiling until January 2025 in exchange for modest limits to increases in discretionary spending over the next two years. The deal will do almost nothing to reduce the federal deficit, guaranteeing that in January 2025, we will go through this charade again. When

In March 2023, Silicon Valley Bank (SVB) collapsed. When a bank fails, the Federal Deposit Insurance Corporation (FDIC) repays depositors up to a $250,000 limit, a limit that is widely known. Approximately 90% of SVB’s deposits were above this limit. When a bank fails, its remaining assets are liquidated with the proceeds paid to depositors,

Due to losses on its bond portfolio, Silicon Valley Bank collapsed in March. What happened? Bonds are safer than stocks, but not perfectly safe. Bonds carry two risks: default risk and interest rate risk. A bond is a loan; the bond buyer is giving a loan to the bond seller that is repaid with interest.

Everyone hoped inflation would return to normal in 2023. Signs were encouraging at the end of 2022, with inflation falling from a high of 8.9% in June to 6.4% in December. However, the Federal Reserve’s preferred measure of inflation – the personal consumption expenditures price index – unexpectedly increased in January. This casts some doubt

Bloomberg’s December 2022 survey of economists found that 70% expect a recession in 2023. Bank of America and Citibank forecast that such a recession could be “mild.” Consequently, it is worth considering what a mild recession might look like. The 1982-2007 period is sometimes called “The Great Moderation” because that 25-year span was characterized by

Many economists forecast a recession in 2023. The Federal Reserve does not forecast a recession but forecasts tepid economic growth, with the economy growing at only 0.5%, and slowing job growth. Inflation was at a 40-year high in 2022 but job growth was strong. What will 2023 bring? An indicator that a recession may be

The cryptocurrency exchange FTX filed for Chapter 11 bankruptcy on November 11, 2022. This marked a stunning fall for a company that ran star-studded Super Bowl advertisements and owned the naming rights to the arena where the Miami Heat plays. What happened? A traditional bank takes in deposits and uses these deposits to issue loans.

The global economy is facing a severe energy crunch heading into winter. The price of crude oil isp ushing $100/barrel due to the continued conflict between Russia and Ukraine, Saudi-led OPEC production cuts of two million barrels/day and domestic oil production remaining one million barrels/day below what it was prior to the pandemic. The 15-million-barrel

As of writing this column, the 30-year fixed home mortgage interest rate is about 7.5%. If the Federal Reserve increases interest rates at its next meeting, this rate will likely go higher. Already nearly three times higher than what it was in early 2021, it is higher than at any time since the late 1990s.