Tag: The Federal Reserve

The Great Inflation Debate continues.

Senator Joe Manchin, the West Virginia Democrat, became if not the first, but certainly the most prominent politician to sound the alarm about rising inflation and the Federal Reserve’s role in it.

“With the recession over and our strong economic recovery well underway, I am increasingly alarmed that the Fed continues to inject record amounts of stimulus into our economy by continuing an emergency level of quantitative easing (QE) with asset purchases of $120 billion per month of Treasury securities and mortgage-backed securities,” the senator wrote in a letter to Fed Chair Jerome Powell.

This “has led to the most inflation momentum in 30 years, and our economy has not even fully reopened yet. I am deeply concerned that the continuing stimulus put forth by the Fed and proposal for additional fiscal stimulus will lead to our economy overheating and to unavoidable inflation taxes that hard-working Americans cannot afford. Therefore, I urge you and the other members of the Federal Open Market Committee to immediately reassess our nation’s stance of monetary policy and begin to taper your emergency stimulus-response.”

Needless to say, as the Wall Street Journal pointed at, that concern hasn’t prevented Manchin from voting with his party to spend trillions more and add trillions more to the federal deficit.
(By the way, did you hear any criticism of Manchin for trying to “politicize” the Fed? No, me neither).

A few days later, we received the latest indication that inflation may not be as transitory as Powell and many others Continue reading "Does Inflation Matter?" →

Pressure, inflationary pressure that is, is starting to grow on the Federal Reserve to start dialing back its mammoth asset purchases and zero percent interest rate policy. While its main position remains that the recent rise in inflation is only “transitory,” the Fed may have at last started laying the groundwork for an earlier move toward to a less accommodative policy rather than waiting until 2023.

That much became clearer in the release of the minutes of the Fed’s April monetary policy meeting last week.

“A number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes said. In other words, the Fed revealed that it is at least thinking that it may have to reduce its asset purchases—currently, $120 billion of Treasury securities and agency mortgage-backed securities each month—and possibly raise interest rates earlier than it thought because of the inflation threat brought on by a booming economy and government stimulus.

While it may be fair to cut the Fed some slack and let it be more patient in assessing the shape of the economy post-pandemic before it makes any fundamental policy changes, make no mistake that economic growth and inflation are revving hotter and show no sign of being as “transitory” as the Fed believes. Continue reading "The Fed's 'See No Inflation' Posture" →

You kind of knew this was going to happen eventually. You’re just probably surprised it happened so fast and so publicly.

After serving as Federal Reserve chair for four years, until February 2018, and now Treasury Secretary since January, Janet Yellen could probably be forgiven for forgetting what position she holds. After all, in addition to being located in Washington, both the Fed and the Treasury pretty much work hand in hand, with the former directing monetary policy and the latter handling fiscal policy. Under the pretense, they’re both independent of each other.

But last week, Yellen let the cat out of the bag and ignited a one-day mini taper tantrum in stock prices, which is a little hard to understand, given that she only said what everyone else was already thinking. (But as we know, a gaffe is when a politician or government official accidentally tells the truth).

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending [proposed and already enacted by the Biden Administration] is relatively small relative to the size of the economy,” she said in a prerecorded interview at the Atlantic’s Future Economy Summit.

Later on, of course, she walked that back a little, telling the Wall Street Journal, “I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it,” she said.

It was certainly much ado about nothing, but it raises an important question, namely: Other than raising interest rates, either directly or indirectly, what exactly can the Fed do to fend off higher inflation? Continue reading "Treasury Secretary Yellen's Gaffe" →