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Raging Debate: How Serious is the Fed About Inflation?

My take: Not very. Several people I respect disagree.
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Fed Chair Jerome Powell from Fed image file, annotation by Mish

Fed Chair Jerome Powell from Fed image file, annotation by Mish

Serious Debate 

Serious Bullsheet

That is where we are. And that is where the Fed always has been ever since Volcker. 

Five Things to Expect in May

  1. A quarter-point hike
  2. A second dissent
  3. Powell will announce the QT initial schedule by running down the balance sheet, not outright selling
  4. QT will not even start immediately. It's more likely Powell will want to telegraph the start to not upset the market. So look for QT to start in June, with a natural runoff.
  5. Powell will promise to get tough if necessary 

There are three camps on what the Fed does. I respect everyone below.

Many and Faster Hikes

  • Jim Bianco
  • Macro Alf

Serious QT to Steepen the Curve

  • Harvey Bassman
  • Joseph Wang

Baby Steps 

  • Mish
  • Lacy Hunt (Spoke with him Friday)
  • Steph Pomboy
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Other than Hunt, I compiled those groups from statements or videos posted on Twitter. 

If I have anyone wrong, I will be happy to switch groups or create another. 

There is room for a middle ground that no one seems to have taken. That would be something like a moderate amount of QT coupled with a moderate amount of hikes, say 4 hikes plus a fair amount of QT, starting slowly.

There is also room for a superman group: 6 or more hikes plus a heavy amount of QT.

In May we will see how serious the Fed is. 

The more serious the Fed is, the more likely a recession starts this year, not next.

For more on why I think the Fed won't get serious, please see Existing Home Sales Dive 7.2 Percent Wiping Out January's Big Month

This post originated at MishTalk.Com.

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