• Latest
  • Trending
  • All

Insana: Why the Fed’s new inflation policy could backfire

September 3, 2020 14:33
Equities struggle amid economic and China-related concerns

Equities struggle amid economic and China-related concerns

December 29, 2022 08:55
Dollar lacks upside momentum due to lower Treasury yields

Currencies stuck in ranges as New Year holiday looms

December 28, 2022 07:01
Stocks gain, dollar eases ahead of job market data

Dollar pressured by positive risk sentiment in thin markets

December 27, 2022 04:50
Dollar lacks upside momentum due to lower Treasury yields

Dollar tries to shrug off the pressure

December 26, 2022 05:13
Investors spooked by strong US data

Investors spooked by strong US data

December 23, 2022 11:55
Dollar lacks upside momentum due to lower Treasury yields

Dollar back under pressure after short-lived relief

December 22, 2022 05:17
Risk demand reemerges cautiously, but caution remains in place

Risk demand reemerges cautiously, but caution remains in place

December 21, 2022 08:49
Dollar lacks upside momentum due to lower Treasury yields

US dollar resists selling pressure

December 20, 2022 10:44
Market sentiment dented by recession fears

Market sentiment dented by recession fears

December 19, 2022 02:53
Dollar lacks upside momentum due to lower Treasury yields

Greenback stays on the defensive nearly across the board

November 16, 2022 05:34
Investor sentiment improves, but gains limited

Investor sentiment improves, but gains limited

November 15, 2022 05:46
Dollar lacks upside momentum due to lower Treasury yields

Dollar licks wounds after plunge

November 14, 2022 05:05
  • Terms & Сonditions
  • Contact
Tuesday, February 7, 2023
FWNews - pulse of the forex market
  • FUNDAMENTALS
    Equities struggle amid economic and China-related concerns

    Equities struggle amid economic and China-related concerns

    Stocks gain, dollar eases ahead of job market data

    Dollar pressured by positive risk sentiment in thin markets

    Investors spooked by strong US data

    Investors spooked by strong US data

    Risk demand reemerges cautiously, but caution remains in place

    Risk demand reemerges cautiously, but caution remains in place

    Market sentiment dented by recession fears

    Market sentiment dented by recession fears

    Investor sentiment improves, but gains limited

    Investor sentiment improves, but gains limited

    Risk sentiment keeps deteriorating, dollar climbs

    Stocks celebrate US inflation, dollar slumps

    Virus, US-China tensions hit global markets

    Market sentiment turns cautious amid events in the US

    Investors look indecisive ahead of another volatile week

    Investors look indecisive ahead of another volatile week

  • TECHNICALS
  • Interest Rates
  • Economic calendar
  • Backstage
No Result
View All Result
FWNews - pulse of the forex market
  • FUNDAMENTALS
    Equities struggle amid economic and China-related concerns

    Equities struggle amid economic and China-related concerns

    Stocks gain, dollar eases ahead of job market data

    Dollar pressured by positive risk sentiment in thin markets

    Investors spooked by strong US data

    Investors spooked by strong US data

    Risk demand reemerges cautiously, but caution remains in place

    Risk demand reemerges cautiously, but caution remains in place

    Market sentiment dented by recession fears

    Market sentiment dented by recession fears

    Investor sentiment improves, but gains limited

    Investor sentiment improves, but gains limited

    Risk sentiment keeps deteriorating, dollar climbs

    Stocks celebrate US inflation, dollar slumps

    Virus, US-China tensions hit global markets

    Market sentiment turns cautious amid events in the US

    Investors look indecisive ahead of another volatile week

    Investors look indecisive ahead of another volatile week

  • TECHNICALS
  • Interest Rates
  • Economic calendar
  • Backstage
No Result
View All Result
FWNews - pulse of the forex market
No Result
View All Result

Home » Insana: Why the Fed’s new inflation policy could backfire

Insana: Why the Fed’s new inflation policy could backfire

by FWNews
September 3, 2020 14:33
in News
0

Certain often-overlooked markets may be telling us that the Fed’s new policy framework is going to have some immediate unintended consequences.

While that may be a bold claim, there is hard evidence that some changes are already reshaping the economic and inflation outlook. The Fed’s new policy framework is having a pronounced effect on inflation expectations even though the economy remains mired in the deepest recession since the 1930s.

It’s true that manufacturing numbers out this week were stronger than expected and that third-quarter GDP is likely to rebound by 25%, after contracting by a nearly 32% annual rate amid the coronavirus lockdown in the second quarter.

However, that rebound rally in the economy, the stock market notwithstanding, appears to be tenuous at best, as relief funds from the federal government have expired, small businesses struggle and business and personal travel have stalled amid concerns that the virus does not yet have a cure.

In short, it’s hard to imagine that the U.S. economy will strengthen so rapidly and forcefully that the Fed’s old “dual mandate” of maximum unemployment and stable prices will, or can, be met simultaneously.

Still, 10-year inflation “breakevens,” a key measure of inflation expectations, have nearly quadrupled since March, commodity prices are soaring, and the dollar has fallen to a nearly three-year low and long-term interest rates are grudgingly pushing higher.

Let’s break this down: The 10-year inflation breakeven has gone from a half percent in March — as the stock market and economy hit their respective lows — to 1.73%, approaching the Fed’s formerly fixed 2% target. Lumber has surged from $250 per 1,000 board feet last year to over $900 today, amid an explosion in homebuilding and buying. (That is well above the price peak hit during the real estate bubble in the mid-2000s.) Copper has rallied above $3 per pound, a new 52-week high, and an indicator of accelerating economic activity.

China is said to be hoarding copper again as its economy bounces back more strongly that of the rest of the world. Gold and silver are breaking out to new and multiyear highs, respectively, and the dollar’s decline to 2½ year lows is accelerating by the day.

Inflation without growth

Although it is difficult to imagine in this uncertain economic environment, are these signs that the economy will rebound more strongly than anticipated, that Covid will be conquered and that a disrupted world will return to normal more fully and quickly than currently anticipated? It’s possible.

The Food and Drug Administration is fast-tracking therapeutics and vaccines to treat and prevent the virus from making people seriously ill, or worse. And most expect that the Federal government will pass an additional relief package in September, putting another $1 trillion to $1.5 trillion into the economy.

But getting the unemployment rate down significantly, as some temporary layoffs become permanent, and as disruptive technologies reduce the need for labor, it’s hard to see the economy grow so fast that price pressures accelerate to the Fed’s newly desired levels.

In addition, the world economy is becoming less “globalized,” a development that could “positively” affect the pricing of goods and services after decades of disinflation.

It’s also beginning to look like we could get inflation without long-term, above-trend, economic growth.

In other words, it’s possible that for the first time in decades, the Fed’s new framework may produce inflation for inflation’s sake, which is not the Fed’s desired outcome.

While market messages have been distorted to a certain extent of late, some messages are being generated by markets we often don’t watch as closely as we watch stocks and Treasury bonds. That message is suggesting that inflation may be accelerating without the desired improvement in parts of the economy that matter: jobs and growth.

Unless or until we get more than just a pickup in expected inflation, monetary and fiscal policies may have had some unintended consequences that only certain markets are warning of.

While early, it is time to watch those off-the-run markets much more closely than we have in years. And inflation protection might be a great idea for your portfolio because the 43-year war against deflation might have already been won, though only a few know it right now.

Share2Tweet1
ADVERTISEMENT
FWNews

FWNews

Track the pulse of the market

Related Posts

Equities struggle amid economic and China-related concerns
Fundamental analysis

Equities struggle amid economic and China-related concerns

December 29, 2022 08:55
16
Dollar lacks upside momentum due to lower Treasury yields
Technical analysis

Currencies stuck in ranges as New Year holiday looms

December 28, 2022 07:01
12
Stocks gain, dollar eases ahead of job market data
Fundamental analysis

Dollar pressured by positive risk sentiment in thin markets

December 27, 2022 04:50
12
Dollar lacks upside momentum due to lower Treasury yields
Technical analysis

Dollar tries to shrug off the pressure

December 26, 2022 05:13
12
Investors spooked by strong US data
Fundamental analysis

Investors spooked by strong US data

December 23, 2022 11:55
11
Dollar lacks upside momentum due to lower Treasury yields
Technical analysis

Dollar back under pressure after short-lived relief

December 22, 2022 05:17
16

Leave Your Opinion Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

Federal Reserve Board issues enforcement action with former employee of BBVA USA

June 3, 2021 14:45
11
Dollar lacks upside momentum due to lower Treasury yields

Dollar keeps retreating from peaks as positive risk sentiment weighs

July 18, 2022 05:59
20
Five questions for the ECB

Ready, steady, review: Five questions for the ECB

January 21, 2020 07:48
21

Ads

Shneider Electric

Most Popular

A slow start to the week in FX markets
Technical analysis

Dollar regains ground to start the week

January 25, 2021 07:25
118
A slow start to the week in FX markets
Technical analysis

Greenback advances modestly amid strong data

May 28, 2021 07:38
110
Kim Jong Un reportedly says his nuclear weapons guarantee there will be no more war
News

Kim Jong Un reportedly says his nuclear weapons guarantee there will be no more war

July 28, 2020 08:29
95
FWNews

Copyright © 2022 FWNews

  • Terms & Сonditions
  • Contact
No Result
View All Result
  • FUNDAMENTALS
  • TECHNICALS
  • Interest Rates
  • Economic calendar
  • Backstage

Copyright © 2022 FWNews