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“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” the U.S. Federal Reserve’s Open Market Committee said in a statement following its 28 July meeting.
“The economy has made substantial progress toward” the Fed’s goals of economic recovery and maximum employment and the committee will “assess progress in coming meetings” in September and November, the group added.
Translation: the Fed is signaling that it will begin to scale back its bond purchases… possibly later this year.
During last year’s economic collapse, the Fed began buying $40 billion a month in mortgage-backed securities and $80 billion in corporate and U.S. treasury bonds to keep markets greased during the COVID War.
It also has cut interest rates almost to zero and has indicated it will begin raising them after the bond-buying program ends. (See “Will Fed Cut Bond Purchases Early Next Year?,” Trends Journal, 27 July 2021.)
Raising interest rates “is not something that is on our radar screen right now,” Fed chair Jerome Powell confirmed in a 28 July press conference.
After the Great Recession, the Fed eased out of bond-buying over 10 months, then waited 14 months more before raising interest rates, taking until 2014 to end its emergency supports.
The central bank will take the same gradual approach this time, Fed officials have said.
If the Fed applies the same time scale now, it would not increase interest rates until some time in 2024, an increasingly unlikely prospect: a growing number of Fed officials have voiced the need for a rate hike sooner than that to hose down inflation. (See “When Will Fed End Cheap Money Policy?,” Trends Journal, 27 July 2021.)
Although the U.S. inflation rate surged to 5.4 percent in June, its highest since August 2008, the Fed is holding to its stated view that inflation will throttle back to around 2 percent after supply-chain glitches wrought by the economic crisis work themselves out.
“There’s absolutely no sense of panic” about inflation at the Fed, Powell said in his news conference.
However, “we’re actually responsible for this [inflation rate], so we have to take seriously the risk case that inflation will be more persistent,” he admitted.
That sense of responsibility could force the Fed to raise interest rates before its stated time of 2024, even if the economy and job market have not recovered as much as the Fed would like, the Wall Street Journal said.
TREND FORECAST: What a difference a week makes. With the series of new mandates to fight the COVID War being imposed across the nation by politicians, and the public’s COVID Fear rate spiking… the Fed’s comment that “With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” is off-trend.
While we had earlier forecast that the Fed would be forced to raise rates as inflation spiked, we had made that prediction before the Delta variant COVID War 2.0 was launched.
Now, with politicians re-imposing new stringent measures to fight the Delta variant, economic growth will slow, which will force the Fed to leave interest rates unchanged until at least 2023.
This will, in turn, be bullish for equity markets as the cheap money flow will keep the Wall Street Junkies gambling, the housing market relatively strong and push precious metal prices higher… as the value of the dollar decreases and inflation moves higher.