Federal Reserve Chairman Jay Powell, is constantly saying that monetary policy is being restrictive. The question I would ask is what’s being restricted. He himself in his press conference, pointed out that rather than look at GDP, to look at demand, you really want to look at final demand by domestic purchasers. It’s a technical term. But it says how much money are people spending in the US, and that might include businesses? Well, in the first quarter of this year, real final demand by domestic purchases went up 3.1%. That was up from the 2.8% in the previous four quarters, nominal, which includes inflation was up 5.9 versus 5.3, in the previous four quarters. Now, two little problems for the Fed in the math in that first, both nominal and real final demand, have been accelerating. They’re growing faster in the first quarter, which was supposedly weak, then they had bad things are being restricted, that’s not going to happen. And second of all, the inflation applauded implied by those numbers 2.8% In the first quarter versus 2.5, and on previous four, suggested inflation is accelerating. That’s exactly the opposite of what the Fed wants. So neither real growth nor inflation, are now being restricted by a supposedly restrictive monetary policy. Well, why is that? And I think that perhaps the Chairman has forgotten the most important channel by which fed policy affects the economy. And that’s through household wealth. Well, that sounds a little bit odd. But think about how a typical family would behave. They know about how much money they’re going to need when they retire. They probably add in expenses, like paying for the kids education, or maybe their wedding. And as long as they have enough leftover, to make it through what we call life cycle reasons, then they’re comfortable. If they have not enough money to do those essential lifecycle purchases, then the only way to get there is to start saving now. And if they save now, that means they can’t consume now, they don’t consume now the economy is weak. But in fact, savings rates are now at record lows. And that’s one of the reasons why final demand is just so great. consumers feel flush, because they feel wealthy. Well, if you feel wealthy, then there’s you have met your life cycle needs. You can go out and spend go out to dinner if you want take that vacation. Well, what do we mean by them feeling wealthy? Well, the history of the last 25 years has been that if a series of bubbles, one of them was the so called.com bubble at the turn of the century, which ended up crashing. And what happened there? Well, since the peak of the.com bubble, basically a stock market bubble, stocks have risen four times as fast from that bubble peak, as has inflation. So certainly stock prices haven’t been restrained at all. They’re up by four times faster than inflation from the peak of their last bubble, or home prices, which had a peak in 2007, just before they crashed and caused the great financial crisis. Average house prices since then, since 2007, have risen 50% faster than the overall inflation rate. Again, this is from the peak of their bubble. So it’s not that we’re simply at a bubble. We’re in a bubble of all bubbles with stock prices and housing prices through the roof relative to where they were when everyone thought those prices were in a bubble. Yen remember 200% more in terms of stocks and 50% more than inflation, in terms of housing. That’s a lot of extra money to spend and they’re spending it. So I think what Chairman Powell and The rest of the FOMC are forgetting is that the wealth effect is really going to be their enemy, if they expect their inflation rate to drop to 2%. It’s strange when they started quantitative easing back in 2009. That was Ben Bernanke. He was explicit on what they were trying to do. They were trying to create a wealth effect. With that wealth effect. They were hoping that consumers because they would feel wealthy would spend more, and they succeeded. The problem today is that they succeeded beyond their wildest expectations.