Beth Hammack stood in front of a microphone and said rates might need to go higher to prevent an "inflationary mindset." The Cleveland Fed president believes if she uses the word mindset enough times, prices will care about her feelings.
Here's what happened. Inflation exists. The Fed raised rates. Inflation continued existing. Hammack concluded the problem must be psychological. Not monetary policy errors. Not supply chains. Not energy costs. The issue is that people have the wrong mindset. If everyone just believed harder, their grocery bills would shrink.
Tighter monetary policy, she says. As if the current policy has been loose. The Fed has been hiking rates for two years. Mortgages cost 7%. Credit cards charge 22%. But sure, let's crank it higher because someone somewhere might be thinking inflationary thoughts.
Retail traders heard this news and immediately checked their portfolios. Down 18% this year. Down 31% last year. They nodded solemnly and thought, "Good thing the Fed is protecting me from an inflationary mindset." Then they bought more SPY calls expiring Friday because a guy on Twitter with a laser-eyed profile picture said the bottom was in.
The Cleveland Fed president makes $294,200 per year to explain why your paycheck buys less. She calls it preventing a mindset. You call it rent. The difference is she has tenure and you have a Robinhood account with $187 in it.
Hammack joins a long tradition of central bankers who mistake talking for doing. She could raise rates to 20%. She could lower them to zero. She could sacrifice a goat on the steps of the Eccles Building. The result would be identical: another speech about mindsets, another headline, another day of your calls expiring worthless.
Photo by Paul-Christian M on Unsplash
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