Inflation fight lost before it starts!
Buy gold now. The Federal Reserve’s response to the highest inflation in 40 years, inflation that already has many Americans struggling with sharply rising grocery bills, is to serve up a giant nothingburger.
Fed Chairman Jerome Powell said on December 15th that the Fed is keeping interest rates near zero, but is speeding up the reduction in its asset purchases.
So interest rates, for those that can borrow at favored insider rates, are less than negative five percent. Yet the Fed intends to leave those rates in place while producer prices have moved within a whisker of double-digits over the last 12 months.
Meanwhile, the Fed says that it will reduce the rate at which it purchases US government and mortgage securities. It purchased securities with made-up money at the rate of $120 billion a month throughout most of 2020 and 2021. In November it announced it will taper the pace of those purchases by $15 billion a month. But with the latest surge in inflation, it announced today that it would taper at a rate of $30 billion a month instead.
As for interest rate increases, the Fed signaled that it is prepared to increase benchmark rates as many as three times next year, to cool high inflation. But nothing now. It apparently doesn’t think that the highest inflation in 40 years needs cooling now.
Market commentator Michael Shedlock was withering in dismissing today’s policy announcement, calling it “wimpy,” and a “clown act.”
We agree that the Fed’s policy response is not serious and expect more policy pivots at any time.
A CNBC reporter wrote recently, “The Powell Fed, in fact, has become almost as known for its abrupt changes in direction as it has for the unprecedented levels of stimulus it has provided during the pandemic.”