The Fed, interest rates, and the economy


Note:  If you become an annual paid subscriber, you will receive an autographed copy of my memoir. Please send me your address and I will mail you my book. 

Robert Wright’s review of my book captures the essence of my journey in America. 

Murray’s Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

“There is a right way and a wrong way, always choose the right way.”  Abraham Sabrin (1914-2001)

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, (sic) promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. Preamble to the Constitution

Every Wednesday at 11:05am talk show host Gary Nolan and I discuss the economy and politics.

Last Wednesday the Federal Reserve announced it would pause hiking the fed funds rate.  The Fed has been raising the rate banks borrow from each other to “fight” inflation.  The Fed flooded the economy with new money in 2020-2021 to “stimulate” consumption and production during the Covid lockdowns and bring down the spike in unemployment.

As the chart below reveals, the Fed kept its benchmark rate close to zero for 18 months as evidence was piling up that inflation (the solid line) was accelerating.  The Fed’s irresponsible monetary policy is an understatement.  Instead of maintaining the purchasing power of the dollar—one component of its original mission—the Fed thinks it can micromanage the economy by manipulating interest rates. It cannot. 

Chairman Powell and his merry men and women at the Fed were clueless about the consequences of their printing of $5 trillion in just three years (see chart below) and take interest rates to nearly zero percent.  The Fed policymakers need to read Rothbard’s monograph about money and banking to avoid their stop-and-go policies of boom and bust.  Until that happens, inflation and recessions are inevitable. 

The unemployment rate is one of the most sensitive indicators of the economy’s health.  A rise in unemployment next year will be “poison” to Biden’s presidential campaign. (I believe Biden will drop his presidential bid before the Democratic nomination next summer. See my April 25 column.). Thus, the Democratic nominee will be hard pressed to defend Biden’s economic policies as unemployment reaches painful political levels. 

According to the Conference Board’s Index of Leading Indicators, a recession signal occurred several months ago.  A recession will be more evident when the unemployment rate rises above 4 percent.  There is nothing “magical” about 4 percent, but it will be perceived as a weakening economy, never good for the political party in power. 

In the meantime, analysts realize that interest rates will stay elevated for longer than it is generally believed for a several reasons, not the least of which is the US Treasury’s need to finance budget deficits which will remain at least one trillion dollars for years to come. 

Make no mistake about it, the federal government is headed for a major financial crisis down the road.    The national debt, both public and private, has increased to unsustainable levels ($60 trillion) given the rise in interest rates.    Households will have a more difficult time servicing their credit card and other debt, because interest rates will not decline markedly in the years ahead…unless there is a full-blown crisis which the Fed would “attack” by opening the monetary spigot like it did three years ago. Interest rates would decline initially and then would rise as inflation would skyrocket when the public realizes the dollar’s purchasing power will decline.  Money then becomes a “hot potato.”  Holding dollars becomes a losing proposition as the public unloads dollars to purchase real goods. 


My essay on the economy was published in Fortune earlier this year  This is an update of my previous forecast, 

Murray Sabrin, PhD, is emeritus professor of finance, Ramapo College of New Jersey. Dr. Sabrin is considered a “public intellectual” for writing about the economy in scholarly and popular publications. His new book, The Finance of Health Care: Wellness and Innovative Approaches to Employee Medical Insurance (Business Expert Press, Oct. 24, 2022), and his other BEP publication, Navigating the Boom/Bust Cycle: An Entrepreneur’s Survival Guide (October 2021), provides decision makers with tools needed to help manage their businesses during the business cycle.  Sabrin’s autobiography, From Immigrant to Public Intellectual: An American Story, was published in November, 2022.

Murray’s Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

What do you think?

Written by CONK!

Full Interview: Kash Patel Talks His New Book, “Government Gangsters”


Full Interview: Cameron Hamilton, Former DHS Division Director and VA-07 Congressional Candidate