Tag: inflation

Pretty much as expected, the Federal Reserve last week said that, in the face of rising inflation and a booming economy and job market, it would further reduce its purchases of Treasury and mortgage-backed securities and raise interest rates.

But not yet.

Beginning in January, the Fed said it will be buying $60 billion in bonds a month, which is down 50% from the original schedule of $120 billion a month and its recently reduced plan of $90 billion, announced only a month ago. Which means the program will end next March, as opposed to the original termination date of June, at which time the Fed expects to start raising interest rates unless something happens in the meantime.

The Fed is projecting three 25 basis-point increases in its federal funds rate next year, followed by three more in 2023 and two more in 2024. That would put the fed funds rate in a range of 1.4% to 1.9% at the end of 2023, up from a range of 0.4% to 1.1% in its previous projection in September. The current rate, of course, is 0.1%, or near zero. Continue reading "Powell Wimps Out" →

There shouldn’t be too many surprises coming out of this week’s Federal Reserve monetary policy meeting. The newly hawkish Fed is likely to formally announce its intention to accelerate the tapering of its asset purchases, as Fed chair Jerome Powell told Congress recently, echoed by other Fed officials so that the program ends sometime around March of next year, rather than several months later, in order to ward off the inflation that Powell now concedes isn’t transitory.

The bigger question is, will the Fed actually be successful in putting the inflation genie back in the bottle? After trying unsuccessfully for more than 12 years to lift inflation past its 2% target, why should we now believe that the Fed suddenly has the smarts and the oft-mentioned “tools” to rein in inflation that is now at its highest level in several decades?

The data-driven Fed has more than enough justification to expedite the taper, which would then lead the Fed to start raising interest rates off zero soon after, rather than waiting until sometime at the end of next year or even 2023.

Inflation

On Friday, the government announced that the year-on-year rise in the consumer price index jumped to 6.8% in November, up from 6.2% the prior month and the fastest pace in nearly 40 years. It was also the sixth straight month that it topped 5%, adding further evidence that the rise in inflation this year is anything but temporary. The YOY rise in the core index, which excludes food and energy prices, rose 4.9%, up from October’s 4.6% pace and the steepest increase since 1991.

Does that sound transitory to you? Continue reading "The Battle Against Inflation Begins" →