The Fed Passes The Buck Once Again!
The Federal Reserve will start dialing back its ultra-low-rate policies this year as long as hiring continues to improve, Chair Jerome Powell said Friday, signaling the beginning of the end of the Fed's extraordinary response to the pandemic recession.
The Fed's move could lead, over time, to somewhat higher borrowing costs for mortgages, credit cards, and business loans. The Fed has been buying $120 billion a month in mortgage and Treasury bonds to hold down longer-term loan rates to spur borrowing and spending. However, Powell's comments indicate the Fed will likely announce a reduction — or "tapering" — of those purchases sometime in the final three months of this year.
In a speech being given virtually to an annual gathering of central bankers, Powell stressed that the beginning of tapering does not signal any plan to start raising the Fed's benchmark short-term rate, which it has kept near zero since the pandemic tore through the economy in March 2020. Instead, rate hikes will not likely start until the Fed had finished tapering its bond purchases.
However, Powell said inflation had risen enough to meet its test of "substantial further progress" toward the Fed's goal of 2% annual inflation over time, which was necessary to begin tapering. There has also been "clear progress," he said, toward the Fed's goal of maximum employment.
At the same time, the Fed chair said the central bank is monitoring the economic impact of the highly contagious delta a variant, which has caused a sharp spike in COVID-19 cases in the United States, especially in the South and West.
"While the delta variant presents a near-term risk, the prospects are good for continued progress toward maximum employment," Powell said. He spoke via webcast to the Jackson Hole Economic Symposium, an annual conference of central bankers held virtually for a second straight year because of COVID-19.
A sharp jump in inflation has put the Fed's ultra-low-interest rate policies are under growing scrutiny, both in Congress and among households that are being squeezed by surging prices. According to the Fed's preferred gauge, inflation rose 3.6% in July compared to the biggest increase in three decades a year earlier. The month-to-month increase slowed from 0.5% to 0.3%.
At their last meeting in late July, most Fed officials said that inflation had met its goal of making "substantial further progress" toward topping 2% for some time. According to minutes from the meeting released last week, if the economy continued to improve, most officials said it would be appropriate to begin reducing the Fed's bond purchases later this year.
Complicating the situation, the resurgence of the pandemic, led by the delta variant, has confounded the Fed's expectations that the economy and job market would be on a clear path to improvement by this fall. In addition, the delta variant could slow spending in such areas as air travel, restaurant meals, and entertainment.
Fed officials also hoped that many factors discouraging Americans from seeking jobs, such as fear of catching the virus, would begin to dissipate this fall and boost job gains. Instead, the delta variant may renew those fears and potentially postpone the Fed's point to gain a clear read on the job market.
We are now in waters that have never been tested before. Between the Fed and Janet Yellen's MMT theory on the money supply and how it is supposed to function, It seems we have lost complete touch with reality. The moment tightening begins, stocks, bonds, real estate, etc., are going to go into cardiac arrest as there will not be this insane amount of liquidity in the markets. Every major Central bank across the world is picking up gold at a record pace, and the ETF's are extremely oversold, so why aren't prices booming? The Biden administration is well aware that If metals shoot through the roof, their false representation of the economy will be shown as most Americans look at PMs like the actual inflation gauge, and rightfully so. Do not let the emotion from the fake news outlets make you decide or stop you from making a decision. Gold and Silver have been the only source of wealth that has been around from the begging of time, and by the looks of it, until the end of time. Pray for the Best and Prepare for the Worst! Give us a call, email us, or visit HTTPS://GoldPro.com and see why we are "The Trusted Brand in Precious Metals."