Rate Cut Crisis Barely Dodged With New Jobs Numbers

Just a few days ago, it seemed that the US was on the verge of a recession. While the long-term trajectory is still one that is far too tenuous to rely on, the recent jobs report seems to suggest that the US is not headed for immediate recession. Although the status of the US in the short term is somewhat stabilized, we must be thankful that the jobs data was not used to guarantee a worse long-term outcome. Poor economic statistics are often a good measure of the economy’s state, yet they are consistently used to justify far more drastic antirecessionary measures that greatly damage people’s ability to meaningfully make good constrained choices. The recent reversal of job data from almost recession-level statistics is just one example of many situations that could have been used to sink us into an even deeper approach to our inflationary spiral.

The Fed will attempt to take advantage of any crisis. Whether covid or jobs data, any situation that can be made to seem “not normal” will be used to justify expansionary monetary policy and higher spending. The jobs data, while just one of many indicators of the economy might not be performing at a high level, seriously influenced speculation that the Fed would cut rates once more.  Even from within, the Fed would have only needed one more month of similar jobs data to certify a full-blown recession and start justifying the same cuts that Trump has been begging for all along. While drastic cuts can cause panic just by their extreme reactionary nature, they are usually justified through convincing us that the other situation is more drastic. Crisis repeatedly resets the time horizon from long-term into the present and slowly ensures more guaranteed future consequences justified by a short-term gamble to avoid disaster. Not every “crisis” will be cut short like the recent jobs data, but lesser things have been used to justify actions with permanent consequences. 

All discretion-based economic policy will diminish needed market corrections, and replace them with an inevitable, slow, policy based decline. Even if economic rules are set, when they are set through law rather than a situation easily changed by discretion, people’s expectations and reality can start to converge. While much economic regulation is limiting, it will at least provide a stable framework for action in the future. However, when instability is inherent to the governing structure, crises will justify swift and unpredictable action to the detriment of the nation. Discretion will be used to prevent short-term structural shifts without an understanding of their necessity. A rate cut to prevent 2% additional employment is like taping a snake’s skin on to prevent it from shedding and growing. In nations with clearly delineated property rights and rule of law, high unemployment has always been resolved by time and innovation rather than the government’s hand up. All government action will have some unforeseen side effects, but reducing discretion will always benefit the people’s ability to navigate the web of regulation. 

In order to escape from a world where news stories drive the most fundamental outcomes of commerce, we must limit the role of the Fed and government intervention to situations where it is needed most gravely, or structurally restrict them, preferably through abolition of the Fed. The existence of the Fed can only be justified when they can convince us they are needed to prevent crises. If they cannot convince us to be afraid of a recession, and that they can solve it, they will have no reason to justify their existence. Whether ill intentioned, or not, the Fed’s very structure requires that it reacts to any sensational economic news, and inserts itself. If it cannot find a way to justify its own intervention in an economic crisis, then the very premise of its existence is weakened. Until monetary stability is the only goal of the Fed, even fulfilling their responsibilities perfectly will damage outcomes for the people. The dual mandate has the nation on a steady path to a single outcome. The road to hyperinflation is paved with dozens of mini crises that can make us forget the insidious damage of currency devaluation. The turn-around of the recent jobs data is little more than chance and timing, yet it could have had meaning read into it that would damage us for years to come. The recent turnaround of the jobs data signals a crisis we narrowly avoided, and we must always be vigilant for the next crisis that will be used to justify purchasing a guaranteed ticket to long-term economic decline.