Perhaps The Fed Is Not Clueless

Washington (Jan 6)  Summary:  •While there are valid reasons to question current Federal Reserve policy, based on arguments supported by hard economic data, there are also valid reasons that support their moves.

•Of concern may be some compounding negative side-effects resulting from a prolonged loose monetary policy, such as credit going to otherwise creditworthy companies.

•While the timing of the Fed's actions may be up for debate, there is in my view no doubt of benefits of a proactive rather than reactive Federal Reserve.

There has been quite a bit of criticism of current Federal Reserve policy in media and certain political circles lately. I have to admit that this article has been inspired by Mr. Cramer's semi-populist rhetoric in regards to the Federal Reserve's policy of raising interest rates, as well as President Trump's criticism in this regard. This critical rhetoric is easy to embrace, especially among the investment community, which has been somewhat rattled by the market activity we saw in the past few months. I cannot say that I am necessarily happy about it myself, given that I have gone from having six out of seven stocks in my portfolio being up, to only three being up, as I write this. But we should keep in mind that while we are going through an unpleasant period of re-adjustment at this moment, after a very long period of very low interest rates that we became accustomed to, perhaps we may all be better off in the longer term, assuming that the Federal Reserve does indeed have valid reasons to opt for monetary tightening.

It is not the first time that Mr. Cramer found it necessary to be critical of the activities of the US central bank. He is famously known for the: "They know nothing" statement he made in a 2007 interview, referring to Fed leaders as being out of touch with the reality of the impending crisis, arguing that they should have been loosening monetary policy, in order to accommodate certain companies which were increasingly finding it hard to digest the sub-prime, AAA-rated mortgage loans on their books. Of course, he brought up the prospect of millions of people who were on the brink of losing their homes as a reason for the public to be concerned.

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