Inflation Series Part 2: Monetary policy is inflationary
Monetary policy refers to whether the Federal Reserve is stimulating or constricting growth and inflation in the broad economy. While its policies are directed at the real economy, they significantly affect the financial economy or markets. This is because interest rates and quantitative easing policies directly affect leveraged or financed positions carried by Wall Street.
While Interest rates are higher than last year, they are still significantly below inflation. Generally, this situation is called "negative" real interest rates and is generally understood in economics to be stimulative. So, even with their rate increases, the Fed is well behind in suppressing inflation. There is a strong political angle to this. The party in power will be blamed for the recession triggered by the Fed's anti-inflation policies, so there is tremendous pressure to NOT trigger a recession.
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Robert Lloyd, CFA®
Chief Investment Officer
Lloyds Intrepid Wealth Management
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