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 \u201ctransitory,\u201d 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.<\/p>\n
That much became clearer in the release of the minutes<\/a> of the Fed\u2019s April monetary policy meeting last week.<\/p>\n \u201cA number of participants suggested that if the economy continued to make rapid progress toward the committee\u2019s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,\u201d the minutes said. In other words, the Fed revealed that it is at least thinking that it may have to reduce its asset purchases\u2014currently, $120 billion of Treasury securities and agency mortgage-backed securities each month\u2014and possibly raise interest rates earlier than it thought because of the inflation threat brought on by a booming economy and government stimulus.<\/p>\n 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 \u201ctransitory\u201d as the Fed believes. <\/p>\n The headline consumer price index jumped 4.2% on a year-on-year basis in April, up from the 2.6% pace the prior month, making it the fastest 12-month pace since 2008. The core rate, which excludes food and energy, rose at a 3% YOY rate, nearly double March\u2019s 1.6% pace.<\/p>\n Producer prices\u2014which often eventually get passed onto final consumers\u2014are rising even faster. The headline PPI jumped 6.2% YOY in April, the fastest annual pace on record (at least since records were kept starting in 2010), and up four full percentage points just from the prior month. The core rate rose by 4.1%, up from March\u2019s 3.1% rise.<\/p>\n Learn how to use options to supersize your portfolio returns with Trader Travis' free training!<\/p>\nOptions Basics Boot Camp - Free<\/a><\/h5>\n