Gerstner says the key missing element for the last three years has been predictability in markets.
“What we need In the nineties. We need predictability. Yeah. And what we haven't had the last three years is predictability.”
Gerstner says the Fed made a clear mistake in summer 2021 by not seeing inflation coming.
“But by the summer of twenty one, when the Fed was saying they don't see inflation, that was clearly a mistake.”
Gerstner says cargo container costs increased tenfold by June 2021 when inflation was evident.
“June 2021, when the world knew inflation was here. I mean, the cost of a cargo container had gone up by 10 x.”
Gerstner cites Kashkari's June 2021 forecast of no rate hikes until 2024 as evidence of Fed miscalculation.
“He says we're not gonna have rate hikes until 2024. That's how wrong the Fed's forecast was in June 2021 because they were making the argument that inflation was transient.”
Gerstner highlights the shift from zero rates to 8% mortgages as evidence of dramatic policy change.
“We've gone from effectively a 0% interest rate environment in ZERP, where corporations borrowed for free and consumers borrowed for free, to now we have 8% mortgages.”
Gerstner notes Fed raised 2024 GDP forecast from 1.1% to 1.5% despite worsening real economy conditions.
“The Fed forecast in June of this year for GDP growth for 2024 was 1.1%. Today, the Fed forecast for GDP growth in 2024 is 1.5%.”
Gerstner reports the Fed expects 2% negative real rates by year-end, with 4.3% inflation and 2.3% ten-year rate.
“They said we expect inflation exiting the year to be 4.3 and we expect the ten year to be around 2.3.”
Gerstner argues the Fed is behind the curve on recession rather than inflation, citing massive demand destruction.
“I tweeted a few weeks ago, the Fed's probably behind the curve on recession, not inflation. Right? We have massive demand destruction going on right now in The US economy.”