Financial Times/Tommy Stubbington and Colby Smith/8-30-2020
“Government bond prices around the world dropped after Jay Powell confirmed last week that the Federal Reserve was prepared to tolerate higher inflation as it steers the economy through the aftermath of the coronavirus pandemic. But many investors say that talking about inflation is one thing, and actually generating swifter price rises is another entirely. Unless the Fed can avoid a path trodden by the Bank of Japan and the European Central Bank – where vast monetary stimulus has failed to nudge inflation back up to target levels – then a lasting reversal of the four-decade rally in fixed income is unlikely, they say.”
USAGOLD note: Henry Kissinger stated early on (reposted here yesterday afternoon, please scroll) that “the world will never be the same after the coronavirus”, and that rightly or wrongly “many countries’ institutions will be perceived as having failed.” To our great misfortune, his views gain more credibility as each day passes …
“Perhaps the confusion stemmed from Powell swinging back and forth on inflation himself. On the one hand, he emphasized that the central bank would no longer be dictated by a formula that balances employment and price growth, which, as my Bloomberg Opinion colleague Tim Duy eloquently put it, ‘throws the Taylor Rule* into the dumpster.’ That gives policymakers more discretion than before, which could make it more difficult for them to press pause on a hot economy. And yet Powell made clear that any inflation overshoots would only be ‘moderate,’ suggesting there’s some tangible level not too far above 2% that would make the Fed nervous.”
