|
Hedge Clippings | Friday, 19 March 2021
After all the concern about rising bond yields and the threat of inflation, Jerome Powell, the chairman of the US Federal Reserve announced after the FOMC meeting this week that the plan is to keep interest rates where that are (near zero if you hadn't noticed) for the next three years.
This was not unexpected, but to actually state this is where interest rates will be until 2024 is extraordinary. Once upon a time Central Banks adjusted interest rates in response to the economic conditions prevailing at the time, or about to occur. Now it seems Central Banks set policy, and the market, or economic conditions, adjust to policy.
So much for the "free market" and capitalism. It sounds more like the message we'd hear out of the Soviet system in previous days, or China more recently.
Unsurprisingly, Powell said the recovery to date is due to low rates and the billion$ being thrown at the recovery. Hence, he stated that policy will remain "accommodative" until his employment and inflation goals are met. Those goals being maximum employment and stable prices.
Of course, that may be where the Fed's controls begin to falter. Although he expects inflation to rise above 2% in the near term, he wants to maintain it at an average of 2% in the longer term. But recovery, massive stimulus and full employment don't sound like a recipe for no wage rises, and therefore no or very low inflation.
Powell may well be able to keep a lid on things in the near term, but the likelihood of the economy and market dancing to his tune in the longer term are less certain.
News & Insights
Video interview with Alex Lee from Laureola Advisors
Is this the global macro landmine no one is talking about? by FiftyOne Capital
|
