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  • Writer's pictureJoe Carson

The Fed Punts

The Fed promoted a public perception of inflation that proved false. Now the Fed is trying to promote an unchanged policy of zero interest rates, and asset purchases are still appropriate when the inflation is running hot and real and financial assets are at record levels.

The Fed has zero credibility. The Fed is forecasting 3.4% inflation in 2021 and price stability numbers of 2%-plus in 2022 and 2023. Yet, it will still wait until 2023 to raise rates and keep them well under inflation. Is that sound monetary policy?

Policymakers need to end QE immediately and lift official rates by a mere 25 basis points. If the equity market craters for more than a week, that would prove that an asset bubble exists. Missing the past two asset bubbles was viewed by many as a policy blunder; missing it for the third time will force a major change in the personnel and framework of the Fed

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1 Comment

Jun 17, 2021

Spot on.

As you mention, projected inflation for 2022 and 2023 are 2%, yet Fed maintains keeping rates at zero during this period. (and ignoring 2021)

I think they need to go back and reexamine the Taylor Rule.

Real rates are inflation plus 2%.

Not inflation minus 2%.

Echoes of Yellen that we will look at data.

Only problem is the data that has come in the

last 4 months they are ignoring.

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