Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Fed Watch: Mainstream Media Join The Temporary Inflation Chorus

By Investing.com (Darrell Delamaide/Investing.com)Market OverviewAug 02, 2021 03:02AM ET
www.investing.com/analysis/fed-watch-mainstream-media-join-the-temporary-inflation-chorus-200595367
Fed Watch: Mainstream Media Join The Temporary Inflation Chorus
By Investing.com (Darrell Delamaide/Investing.com)   |  Aug 02, 2021 03:02AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Federal Reserve policymakers have gained an important ally in their effort to convince people that the current rampant inflation is transitory—the mainstream media is now mostly on board with this view.

Financial reporters have been finding sophisticated analysts to back up the Fed’s view that price pressures are temporary supply-chain issues and not structural. However, market indicators of moderate inflation five and 10 years out are open to interpretation. That is the beauty of the market—millions of investors weigh in with their bets, but few of them talk about it.

An alternative interpretation is that rampant, persistent inflation will force the Fed and other central banks to tighten monetary policy, including raising interest rates. And yet another interpretation is that a resurgent pandemic will dampen growth and cool down the economy, perhaps to the point of a recession. Meanwhile, monetarists express alarm about ballooning money supply and the risk that carries for inflation.

A survey of experts at the University of Chicago’s business school last month found 33% agreed that current monetary and fiscal policy risks prolonged higher inflation, when weighted for the confidence each had in their forecast, while 30% disagreed, and 36% were uncertain.

Opinion, it seems, is divided.

Former Treasury secretary and Harvard economist Larry Summers is a virtual Cassandra on the subject. He attributes the rally in government bonds, pushing down yields, to technical factors and adds that markets in any case have a lousy record predicting inflation.

Steven Rattner, another former Democratic aide, has stepped in as a wingman for Summers on this issue. In an opinion piece last week for the New York Times, Rattner demurred on bond market breakeven rates of 2.4% over the next 10 years. “I’m not so sure,” he said, warning that high inflation, even if short of the double digits four decades ago, could force the Fed to hike interest rates sooner than anticipated.

Like every other issue in the U.S. right now, inflation has become a political debate. With President Joseph Biden asserting—against historical evidence—that trillions of dollars in additional government spending will tame inflation, Democratic policymakers and Democratic-leaning media (is that redundant?) have to join the chorus insisting inflation is temporary.

Fed Chairman Jerome Powell, who is waiting to see if Biden will reappoint him, has cast his lot with the Democrats, even though he has ostensibly been affiliated with the Republican Party. Even so, mindful that history will also have a verdict, Powell is hedging his support for indefinite monetary stimulus.

The Federal Open Market Committee, after months of insisting there needs to be a vaguely defined “substantial further progress” to its objective of maximum employment (oh, and price stability), finally acknowledged last week that progress had been made. The committee, according to the policy statement, “will continue to assess this progress in coming meetings.”

Investors saw this as a clear hint that the long-awaited tapering of bond purchases was now on the agenda. At his press conference after the FOMC meeting, Powell repeated the statement's guidance, adding only that “any change in the pace of our asset purchases will depend on incoming data.”

Economists continue to expect guidance on a timetable after the September or November meetings of the FOMC.

However, St. Louis Fed chief James Bullard, something of an outlier on the FOMC, said on Friday that he wants to start reducing bond purchases already this fall, and finish the tapering process by March.

“We are tilted too much to the dovish side,” Bullard said in remarks to reporters after a webcast speech, warning the Fed is not in a good position to react if inflation persists at a high rate.

Bullard, who rotates into a voting position on the FOMC next year, says even if inflation slows down as expected, he doesn’t see it moderating completely in 2022 and is forecasting a rate of 2.5% to 3%.

In the meantime, he says the Fed needs to be ready to act. If inflation does ease on its own, he says, “we have a beautiful response—just stay at near zero policy and push off the date of liftoff.”

Fed Watch: Mainstream Media Join The Temporary Inflation Chorus
 

Related Articles

Jeffrey Halley
China Growth Fears Stalk Asia By Jeffrey Halley - Sep 28, 2021

Although the Evergrande (OTC:EGRNY) saga seems to have receded temporarily in the minds of financial markets this week, Evergrande’s stock is rallying today, China’s...

Fed Watch: Mainstream Media Join The Temporary Inflation Chorus

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email