"The Policy Error Just Keeps Growing" — Danielle DiMartino Booth on the Fed's Dangerous Blind Spot

Summary

• Fed policy error is growing, with increasing division between Hawks and Doves on the FOMC, complicating the path to rate cuts.
• ISM non-manufacturing employment printed at 45.2, a level last seen during the Great Recession and the 2001 recession, signaling severe labor market contraction.
• Only 25% of unemployed Americans are collecting benefits today, down from ~66% historically, as benefits now cover only one-third of living expenses, forcing many into gig work.
• Private credit poses a major contagion risk; the Fed has reclassified loans twice, and investment grade bond flows have turned negative, indicating stress is spreading.
• Consumer sentiment is deteriorating across all income tiers and age groups; high-end spending is weakening (e.g., GM Escalade sales fell by double digits).
• Official labor data is increasingly unreliable (e.g., 79,000 weather-related job losses reported in the warmest March on record), a fact known but unacknowledged by Fed officials due to political pressure.
• The Fed's high-rate policy disproportionately crushes small businesses and working families, while large corporations (Apple, Microsoft) can borrow at will.
• Households face a triple squeeze from resumed student loan payments, high gas prices (~$95 WTI), and tightening bank lending standards, leaving no cushion for shocks.
• The administration's political pursuit of the Fed chair has created uncertainty, holding the economy "hostage" and preventing the Fed from addressing real economic pain.
• Parallels to the 2001 and 2007 economic setups are clear, with similar leading indicators flashing recession warnings.