Fed on Autopilot
The FOMC Statement today shows the Fed remains on autopilot insisting on 2% inflation that is already here by any sensible measure.
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak. Inflation continues to run below 2 percent. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.
The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.
Full Speed Ahead
Bubbles be damned. Full speed ahead with the stimulus in search of inflation that would be visible to anyone who was not wearing groupthink blinders.
Hello Jerome Powell We Have Questions.
In addition to having no vision, Powell cannot hear questions.
Meanwhile, please note Inflation is Poised to Soar, 3% by June is “Almost Certain”
Mish
Fed Commits to “Full Range of Tools” Seeks Inflation Above 2% “For Some Time”
There is too much debt. As Mises said, the outcome of a debt fueled boom is debt destruction or currency destruction. The choice made is currency destruction.
Germany is afraid of hyperinflation, the U.S. is afraid of hyper-deflation, due to past experience.
Inflate the debt away.
Regardless whether Klaus Schwab has his way, the debt cycle is at a reset point. Something has to give.
A choice had to be made and it was made in the right direction. In 2008 the Fed and the Federal government made the conscious decision to bail out the banks which was the right thing to do except they also bailed out those in the banks who caused the problem in the first place. This was a new because in former financial crisis the bankers lost out and many went to jail. Look up the The Savings and Loan Crisis of 1989 which was the most significant bank collapse since the Great Depression of 1929. In that crisis 839 high executives were jailed for fraud. In the 2008 Collapse only one banker was jailed. Wall Street ran rings around Obama because he was a weak president but rewarded him very well.
Austerity as practiced after 2008 did not work. Economies were stuck in a low level reminiscent of 1930’s in many ways and as in the 1930’s radical politics were rising because the system was failing. Then as now the risk of remaining in economic orthodoxy was becoming very dangerous because radical politics was feeding justifiably on the failure of the political system to bring prosperity which aside from defence is the sole justification of government. This time the FED and both parties recognized the danger and acted. They opened the vanes and sent austerity to the dung heap where it belongs in times like today. Inflation is a minor worry compared to the risk of stagnation with a middle class dropping into poverty because those people will it take it well and will not remain passive. That was the the stark choice.
I remember Charles Keating very well.
“Wall Street ran rings around Obama because he was a weak president but rewarded him very well.”
Obama told the bankers that the only thing standing between them and the pitchforks, was him.
“Inflation is a minor worry compared to the risk of stagnation with a middle class dropping into poverty because those people will it take it well and will not remain passive.”
The inflationary 1970’s were an era of stagnation, during which the term misery index was coined.
Traveling today. I see gold broke out on Powell’s speech. Now in a confirmed uptrend.
I wonder if the FED could actually turn the inflation ship around now that it’s moving and that’s why they are committed to it and saying it’s fine because they know they can’t stop it short of a MASSIVE shock to the economy.
There is a crazy amount of money sloshing around in the system right now. So much that new asset classes are being invented like non-fungible tokens that are selling for a million dollars (Dorsey’s tweet, some athletes videos etc) in order to soak it all up (else imagine how high the speculation in stocks or real estate might go).
NFT…Jeez! ….Digital art(you can t hang it up) paid for in digital currency(you can t touch it)….I think there s something VERY wrong with modern society, must be a fckn digital pandemic ! I am glad I passed Cape Horn quite a while ago, I really can t deal with a utterly crazy world, this is just mind boggling….
5 Accept Super PAC millions
It’s enough to make one consider becoming a politician.
It’s now several decades since the high inflation of the late 70’s and early 80’s. The problem is collective memories are short and very few people are around who really remember the era and the problem of inflation. This isn’t just at the Fed, but policy makers in Congress and the Executive branch along with money managers and traders. Very few people truly understand the problem of inflation with first hand knowledge and experience
Inflation is good for some people….those who derive income from assets that are leveraged.
I cannot fight the fed, but I can profit from their decisions.
Since the fed seems certain to print at every possible hint of a downturn to avert a “Crisis” I may as well plan accordingly.
I’m taking all my stimulus, personal savings and buying rentals as fast as I can (pretty slowly actually, but I can’t buy more than 1-2 a year right now). As inflation heats up, if it ever does since there are no guarantees, all my mortgages will be inflated away.
No one knows the future though and there are no guarantees.
At mortgage rates in this current range I believe that even low inflation will be enough to make your decision a good one, as long as you don’t go hog wild and get over-leveraged. It helps to be in the right market, but it sounds like you’re in a very good one to me.
Some moderate inflation is fine, though, because it multiplies any real gains
The risk, of course, is a bad deflationary collapse that would threaten your cash flow equation. But life is not without risk…..and the risk of this kind of RE investment is considerably less than many others I could name.
A couple of other things that have nothing to do with the math, particularly, also apply.
Money into RE is forced savings that can’t be skipped, because you have a note to cover. I can tell you that in my case, that once that note is no longer there (at pay-off) it’s easy to get lazier about raising rents and holding tenants to their commitments. Having the necessity to generate cash flow to make payments is a powerful incentive to be a better manager.
I own a couple of places outright now, and I actually think that’s not the best idea….but it makes the missus happy. Some leverage is always a better plan for making money, too.
Houses owned outright don’t have nearly the ROI of mortgaged houses.
In addition to those factors, the LACK of liquidity, once you get used to it, seems to make it easier for me to work a long term plan. Liquid assets are too easy to cash in the first time you have a financial emergency. It does take 30 years to pay off a house, although most of the time it makes sense to do 1031 exchanges at least every decade to grow the door count.
With that long time horizon, that feeling of trying to get rich quick fades pretty fast….but after some years, you look up one day and realize you are getting rich slowly…and maybe faster than you thought you would….especially when these crazy times happen and you’re positioned to profit.
22 percent annual returns make anyone a rich man in short order. That is my current rate of return when rents, appreciation and mortgage payoff are all considered.
I’m 43 and my horizon is 20 years, so I do plan on going the 1031 route to grow doors as you say.
As you have also said, deflation is the biggest risk to my plan….but every other avenue I see contains more risk than the one I am pursuing. Human nature being what it is I anticipate the government doing everything it can to continue down the path of least resistance.
Printing money to pay bills is far easier for the government than reduced spending, so I do not doubt that is the path they have chosen.
If real high and undeniable inflation were to materialize, housing will be the first asset to go down the crapper dramatically, especially in view of today’s insane valuations….but you already knew that of course….
Part of the beauty is that our model is a cash flow model. It doesn’t even depend on price appreciation. That is icing on the cake. RE is a tangible asset, also. It never falls to near zero like equities. means
All investments in this day and time that have ROI involve risk. I can list reasons all day long that show the risk my RE is far less than anybody’s stocks. And market matters. Rents didn’t even fall where I live in 2008.
Powell will get his wish.