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The Fed is 'out of touch' with the economy: Polcari

Economic data of late — jobs, housing, building permits, consumer spending and industrial production — have all been soft. And yet, the Federal Reserve tells us that the economy is back —- back enough to begin withdrawing its bond buying.

And so it begins.

Janet Yellen, the new Federal Reserve Board chairwoman, appears before the House Financial Services Committee on February 11, 2014 in Washington.
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Janet Yellen, the new Federal Reserve Board chairwoman, appears before the House Financial Services Committee on February 11, 2014 in Washington.

To date, the Fed has cut back by $20 billion a month, holding the stimulus at $65 billion through the March meeting.

(Read more: Cashin: Why the Fed is 'flying blind')

The unemployment rate is currently at 6.6 percent. The Fed's magic number for raising rates is 6.5 percent, though St. Louis Fed President James Bullard said last week that he thinks full employment is closer to 6 percent and therefore we're about 0.6 percent away from full employment.

Full employment? Does he fully understand what is happening in this country? Can he really say that we are close to enjoying full employment?

He was also joined by Dallas Fed President Richard Fisher (a raging hawk), who then said that Congress had better get to work to do their job or risk getting thrown out as the Fed continues on its program of withdrawal. He is demanding that Congress get ready to take the wheel — hoping that any weakness will then be seen as a failure of Congress and not a failure of the Fed.

(Read more: 'Hurdle pretty high' on tapering: Fed's Williams)

"If the fiscal and regulatory authorities that you elect and put into office to craft taxes, spending and regulations do not focus their efforts on providing incentives for businesses to expand job-creating capital investment rather than bicker with each other for partisan purposes, our economy will continue to fall short and the middle-income worker will continue being victimized, no matter how much money the Fed prints," Fisher said in remarks before the Dallas and Fort Worth chapters of Financial Executives International. (Click here to read the whole speech.)

Looks like investors are buying it: They're convinced that the U.S. remains the best option and we can blame the weakness on the weather. Not only have markets not cratered, but we've taken back 100 percent of the losses sustained in the first two months of the year.

100 percent!

(Read more: Janet Yellen is NOT Ben Bernanke)

Later this week, we'll get readings on durable goods, new-home sales and the second read on fourth-quarter GDP. Economists are already preparing us for a downward revision on GDP to 2.5 percent from the first reading of 3.2 percent, according to a survey by Thomson Reuters.

I think that the Fed is out of touch. Does anyone really believe that the economy is firing on all eight cylinders? If we are, then ring the bell that we've hit the targets and let rates normalize.

Then, watch the fireworks!

—By Kenny Polcari

Kenny Polcari is director of NYSE floor operations at O'Neil Securities and a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.

Correction: St. Louis Fed President James Bullard said last week that he thinks full employment is closer to 6 percent and therefore we're about 0.6 percent away from full employment.

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