The Fed certainly has them, but has historically failed to exercise them in a prudent manner. There's a solid argument to be made that if they had done so during the early 2000s, the GFC of 2008 would have been much milder, and things have only gotten worse since then. Before 2008, we had a clean separation between commercial banks and investment banks. That's no longer the case. We "rescued" some of the investment banks by allowing them to merge with commercial banks, while others were allowed to declare themselves "bank holding companies", when by all rights, their investors should have been wiped out. This creates a great deal of moral hazard. Investors get the idea that no matter how imprudently these companies act, the Fed and Treasury will always bail them out. But this is not new; the precedent was set in 1987 with the bailout of Continental Illinois. It's almost like the Fed doesn't really want to engage in prudent regulation of the financial industry. If they were the FDA, I'd say we've got prime example of regulator capture. But the Fed isn't a government agency, the Fed is literally owned by the industry it's supposed to regulate, so expecting them to regulate it in a sensible manner may not be entirely realistic. Now even if they were willing (i.e. if we gave you absolute power over Fed policy), I think it's more than a few years too late to for the Fed to use their regulatory powers to restore sanity and safety back to the financial markets.
"Ultimately, interest rate hikes should reflect not rises in the Consumer Price Index but the recent rises in the velocity of money."
I think we diverge here. When interest rates are lower than the rate of inflation in consumer and producer prices, the time-value of money is negative, which is bound to cause all manner of mal-investment. Rather than watch their money shrink in value, people will seek something, anything that at appears to have the potential to stay even with inflation or appreciate in value. Stocks, real estate, PMs, or whatever. This causes asset price inflation. Bigger outfits who are able to will use leverage and derivatives to accomplish this, but doing that places them in considerable danger should conditions change. And conditions are indeed changing. Look at the TNX chart you linked to back to the early 1980s (40 years back) and draw some trend lines:
That chart reminds me very much of one I made of stock prices during the first quarter of 2009. When the channel they were in finally broke in March, we were clearly at an infection point, and I think we've reached one now in interest rates.
I suppose you're correct in saying that some of the current inflation is due to exogenous factors and thus isn't entirely the Fed's fault, but enabling our government to "borrow" $6T more during the "pandemic" via continued ZIRP was certainly a contributing factor. The classic cause of price inflation is "too much money chasing too few goods." Certainly there's a shortage of certain types of goods, but there's also an awful lot of cash in the system. Ask any real estate agent what percentage of transactions that have been all-cash over the last two year and they'll tell you it's at an all-time high. Where did all that cash come from? Could it be the "easy money" policies that the Fed has pursued for 20+ years, and that they double-down starting in the spring of 2020? ;)
"Regulatory powers"
The Fed certainly has them, but has historically failed to exercise them in a prudent manner. There's a solid argument to be made that if they had done so during the early 2000s, the GFC of 2008 would have been much milder, and things have only gotten worse since then. Before 2008, we had a clean separation between commercial banks and investment banks. That's no longer the case. We "rescued" some of the investment banks by allowing them to merge with commercial banks, while others were allowed to declare themselves "bank holding companies", when by all rights, their investors should have been wiped out. This creates a great deal of moral hazard. Investors get the idea that no matter how imprudently these companies act, the Fed and Treasury will always bail them out. But this is not new; the precedent was set in 1987 with the bailout of Continental Illinois. It's almost like the Fed doesn't really want to engage in prudent regulation of the financial industry. If they were the FDA, I'd say we've got prime example of regulator capture. But the Fed isn't a government agency, the Fed is literally owned by the industry it's supposed to regulate, so expecting them to regulate it in a sensible manner may not be entirely realistic. Now even if they were willing (i.e. if we gave you absolute power over Fed policy), I think it's more than a few years too late to for the Fed to use their regulatory powers to restore sanity and safety back to the financial markets.
"Ultimately, interest rate hikes should reflect not rises in the Consumer Price Index but the recent rises in the velocity of money."
I think we diverge here. When interest rates are lower than the rate of inflation in consumer and producer prices, the time-value of money is negative, which is bound to cause all manner of mal-investment. Rather than watch their money shrink in value, people will seek something, anything that at appears to have the potential to stay even with inflation or appreciate in value. Stocks, real estate, PMs, or whatever. This causes asset price inflation. Bigger outfits who are able to will use leverage and derivatives to accomplish this, but doing that places them in considerable danger should conditions change. And conditions are indeed changing. Look at the TNX chart you linked to back to the early 1980s (40 years back) and draw some trend lines:
https://i.imgur.com/8BuCyWb.png
That chart reminds me very much of one I made of stock prices during the first quarter of 2009. When the channel they were in finally broke in March, we were clearly at an infection point, and I think we've reached one now in interest rates.
I suppose you're correct in saying that some of the current inflation is due to exogenous factors and thus isn't entirely the Fed's fault, but enabling our government to "borrow" $6T more during the "pandemic" via continued ZIRP was certainly a contributing factor. The classic cause of price inflation is "too much money chasing too few goods." Certainly there's a shortage of certain types of goods, but there's also an awful lot of cash in the system. Ask any real estate agent what percentage of transactions that have been all-cash over the last two year and they'll tell you it's at an all-time high. Where did all that cash come from? Could it be the "easy money" policies that the Fed has pursued for 20+ years, and that they double-down starting in the spring of 2020? ;)