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Old 08-27-2020, 07:44 AM
 
Location: 0.83 Atmospheres
11,477 posts, read 11,559,641 times
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Not surprised. Most economists I have heard recently expected this, saying that they thought The Fed would let inflation get to 5% before intervention.

https://www.wsj.com/articles/feds-po..._copyURL_share

‘The Federal Reserve unanimously approved on Thursday a new strategy that will effectively set aside a practice it has followed for more than three decades to pre-emptively lift interest rates to head off higher inflation.‘
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Old 08-27-2020, 07:55 AM
 
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Translation: Party on.
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Old 08-27-2020, 08:02 AM
 
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They never really paid attention to inflation, whether it was the government's measure or the real world, and has stated in the recent past that the inflation measures are wrong. They've responded to the stock market as their primary indicator, mainly of leveraging.

average 2% inflation rate target

They've been above 2 percent four of the last five years as Alliance-Bernstein as noted. If they included the things suggested by the Fed in recent years, such as housing, it would've been well above 4 percent.
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Old 08-27-2020, 08:22 AM
 
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This is a foolish announcement in many ways. Several economic studies of the Fed’s ZIRP and QE programs of the past decade show that the unintended consequences include:

Lower overall economic growth
Decreased consumer spending by the middle class and retirees
Misallocation of capital by businesses (i.e. share buybacks instead of machinery or hiring)
Perpetuation of “zombie” companies that should be dissolved/bankrupt

But to hell with all of that, we will get a S&P at 4K.
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Old 08-27-2020, 08:38 AM
 
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That means interest-rates will be at zero/near-zero for 15 years, as opposed to the originally planned 10.
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Old 08-27-2020, 08:47 AM
 
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Interest rates aren't important at this point since they're still doing 3 trillion dollars a year in QE. The Fed won't look at interest rates until QE has stopped. US, Europe, Japan, and China are expected to buy 28 trillion dollars in assets in 2020 and 2021.

They could've chosen a different approach like the Fed has done before by setting a 2 percent or higher floor on rates for fixed-income assets while doing QE. Setting it to zero or below indicates that a large portion of portfolios (40 percent or more) is subject to cashing out. QE will have to done forever, and reach an endgame at some point because it keeps having to get bigger and bigger to support the economy.
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Old 08-27-2020, 08:49 AM
 
Location: 0.83 Atmospheres
11,477 posts, read 11,559,641 times
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Quote:
Originally Posted by tickyul View Post
That means interest-rates will be at zero/near-zero for 15 years, as opposed to the originally planned 10.
That all depends on inflation. The Fed hasn’t even been able to hit their target 2% (I know that there are people who don’t buy that number, but this is a constant metric that we are using) after the last round of QE. If it does go up this time, and there are reasons to believe it will, rates will have to climb.
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Old 08-27-2020, 08:56 AM
 
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Pressure is on, Powell. For the sake of the world, do not fail.
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Old 08-27-2020, 09:02 AM
 
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All the CD knashing of teeth noted this is a really good move. And frankly it's not a big deal......The Fed simply adjusted written policy formalizing what they were destined to do.


After the recent GDP contraction The Fed. was simply not going to raise short rates in attempts ward off inflationary pressures seen over a quarter. The risk of setting off a new spate of deflation is simply too great.

In other words after a bust it'd be uttely counterproductive to go on an inflation jihad over a hot quarter.

Last edited by EDS_; 08-27-2020 at 09:14 AM..
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Old 08-27-2020, 09:14 AM
 
19,792 posts, read 18,085,519 times
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Quote:
Originally Posted by lchoro View Post
They never really paid attention to inflation, whether it was the government's measure or the real world, and has stated in the recent past that the inflation measures are wrong. They've responded to the stock market as their primary indicator, mainly of leveraging.

average 2% inflation rate target

They've been above 2 percent four of the last five years as Alliance-Bernstein as noted. If they included the things suggested by the Fed in recent years, such as housing, it would've been well above 4 percent.

One of my best friends was a research economist at The Dallas Fed. for a couple of decades, running the department for a long time.

He'd say your thesis statement is absurd. The Fed. pays constant attention to inflation/deflation.


___________

What inflation measures did The Fed. claim were wrong?
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