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A 10 July Financial Times article quotes from an interview the paper conducted with Mary Daly, president of the Federal Reserve Bank of San Francisco, agrees with what we have long forecasted. Ms. Daly warns that the world’s economic recovery from the ravages of the COVID War may not be as rosy as first thought.
Selling the COVID Fear, the Federal Reserve official cautioned against a premature declaration of victory over the virus. She cited surging infection rates and lagging vaccinations, along with concern over the relatively new Delta variant. Noting the latest rise in “cases”as seen in Japan and elsewhere where governments are imposing new restrictions, she said these measures have the potential to put the brakes on what would have otherwise been an encouraging recovery.
(Note that Japan, with a population of over 125,000,000, has recorded some 14,955 COVID deaths in a year and a half; that calculates to some 0.012 percent of the population.)
Fed Bets on Mild Inflation, Full Employment
Daly also voiced her agreement with the current inflation policy of Federal Reserve Chair Jerome “Jay” Powell. The Federal Reserve has always tried to maintain a balance between stable prices and full employment. Raising interest rates, as the Fed hinted in June it might do sooner than had earlier been forecast, tends to rein in inflation.
But Daly expressed confidence that Powell would maintain the policy announced last August: that should inflation rise higher than projections (“overshooting”), the Fed will be “lenient” and, believing such rising inflation to be merely temporary, will maintain the currently ultra-low rates in order to maximize employment and keep the economy humming.
Daly is a member of the Federal Open Market Committee. At its meeting in June, some members predicted the central bank would be reducing its $120 billion per month in asset purchases, but Daly cautioned against removing such monetary support of the economy.
TREND FORECAST: As detailed in this and previous Trends Journals, the Fed will do all it can to keep interest rates low and continue its bond-buying scheme. Also, the Trends Journal has long maintained, however, that inflation numbers are rigged and that an economy based on cheap Federal money is bound to crash; see, for example, our “U.S. MARKETS OVERVIEW” of 23 February.