Breaking News
Get 45% Off 0
🌊 NVIDIA ripple effect: Track AI stocks' response to chip giant's earnings
Explore AI Stocks

Fed Watch: Inflation May Thwart The Best-Laid Plans For Monetary Policy

By Investing.com (Darrell Delamaide)Market OverviewMay 24, 2021 16:11
au.investing.com/analysis/fed-watch-inflation-may-thwart-the-bestlaid-plans-for-monetary-policy-200468253
Fed Watch: Inflation May Thwart The Best-Laid Plans For Monetary Policy
By Investing.com (Darrell Delamaide)   |  May 24, 2021 16:11
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
DJI
+0.29%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US10Y...
-0.14%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BTC/USD
-0.56%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

Policymakers at the Federal Reserve have let the cat out of the bag.

The minutes of the April meeting of the Federal Open Market Committee, released last week, had this to say:

“A number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

Not only are they now talking about talking about tightening monetary policy, they are willing to talk about it to the public:

“Many participants highlighted the importance of the committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases.”

Investors noticed.

DJIA 60-Minute Chart
DJIA 60-Minute Chart

The Dow Jones Industrial Average plunged more than 580 points last Wednesday, even before the announcement, as mounting inflation concerns led to a sell-off of Bitcoin and other risky assets. The Dow’s losses were trimmed to about 164 points by the end of trading. More telling, the yield on the benchmark 10-year Treasury note spiked to nearly 1.7% before receding.

Dangerous Complacency?

The minutes’ veiled warning was couched in the rote language that it would likely be some time until the economy made “substantial further progress” toward the Fed’s goals of maximum employment and stable prices, but there it was—the sign that the FOMC is not completely ignoring the increasing evidence that inflation, transitory or not, is a reality.

Inflation hawk Larry Summers, the former Treasury secretary, said when April CPI data was released earlier this month that prices were rising faster than even he expected.

Summers, who was at one point promised the job of Fed chairman but never got the nod, ratcheted up his criticism of the central bank last week. At an Atlanta Fed event, he accused the Fed of creating a “dangerous complacency” in financial markets and underestimating the risks of inflation and financial instability in their low interest-rate policy.

The Harvard economist is already on the record for criticizing the $1.9 trillion American Rescue Plan passed in March as “the least responsible macroeconomic policy we’ve had in the last 40 years.” Summers’ forecasts have not always been right in the past, but his Cassandra-like warnings continue to raise concerns.

Raphael Bostic, president of the Atlanta Fed, gave a more tempered response in an interview last week, but said he is open to “every scenario.” He added:

“I am paying attention. And because this is such an unprecedented time, I am going to be try to be as prepared as I can for whatever happens coming down the road.”

Dallas Fed chief Robert Kaplan kept up his drumbeat of urging the Fed to consider tapering its bond purchases “sooner rather than later.” He came back to the metaphor that he has used before that it’s time to “maybe take the foot off the accelerator” to avoid having to “press on the brakes” down the road.

Patrick Harker, head of the Philadelphia Fed, added his voice to those calling for talks on tapering, echoing Kaplan’s “sooner rather than later.” He said reducing the bond purchases would be a “first step” in a gradual tightening of monetary policy.

The FOMC’s next policy meeting is June 15-16, followed by a meeting in late July, and then the Jackson Hole symposium in late August. Investors and traders seem to expect Fed Chairman Jerome Powell to hold off on any tapering announcement until that August symposium, but the increasing pressure may force the Fed’s hand earlier.

If the Fed manages to wait until August to make an announcement, investors expect the actual process to start in early 2022. But as the Scottish poet Robert Burns warned long ago, the best-laid plans of mice and men often go awry.

Fed Watch: Inflation May Thwart The Best-Laid Plans For Monetary Policy
 

Related Articles

James Picerno
Are Markets Rethinking the Prospects for Trump 2.0? By James Picerno - Feb 26, 2025

Recent headlines appear to have shaken investor sentiment. It’s premature to read too much into a few days of weaker-than-expected survey numbers. More importantly, the latest...

Charles-Henry Monchau
7 Key Charts on the Current State of the Global Economy By Charles-Henry Monchau - Feb 25, 2025 1

The EU’s most costly budgets, bitcoin’s market swings, and rising US bankruptcies. Each week, the Syz investment team takes you through the last seven days in seven charts. 1. The...

Fed Watch: Inflation May Thwart The Best-Laid Plans For Monetary Policy

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Apple
Continue with Google
or
Sign up with Email