Fed Chairman Jerome Powell faces Congress with the highest inflation readings in 30 years and a Fed Funds policy rate of Zero!
I don't have to tell you we have eye-popping inflation. We see it all around us. The question is what will the Fed do about it. The later they wait to fix this, the more painful the remedy will be. This will ultimately be a political decision. The President and Congress are nervously eyeing the 2022 and 2024 elections. An inflationary recession will not do them much good.
What do you think?
For those that missed it, the key headline is that Powell said QE will remain in place indefinitely.
It is probable that the Fed and bond market are right: these inflation numbers are transitory and supply chains blockages are causing ST price spikes. Remember the toilet paper crisis of 2020? The real problem with leaving emergency Fed stimulus in place is that there is little dry powder for a real emergency.
In the Fed's defense, they are taking in enormous quantities of cash from the money markets. Here is a chart of their "reverse repo" program. It allows funds to deposit cash to earn 5 bps/year, which doesn't sound like much, but it's better than the zero we receive from our banking system.
Robert Lloyd, CFA®
Chief Investment Officer
Lloyds Intrepid Wealth Management
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