The Fed Is Finally Seeing The Magnitude Of The Mess It Created

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When asked about price inflation in his Sunday interview with 60 Minutes, President Biden claimed that inflation “was up just an inch…hardly at all.” Biden continued the dishonest tactic of focuses on month-to-month price inflation growth as a means of obscuring the 40-year highs in year-over-year inflation. This strategy may yet work to placate the most ignorant voters, but people who are paying attention know that price inflation continues to soar.

Thus, while Biden may be pretending that it’s all no big deal, the Federal Reserve knows it better do something about price inflation which even the Fed now admits shows no signs of even moderating.

“You have sown much, and bring in little; You eat, but do not have enough;
You drink, but you are not filled with drink; You clothe yourselves, but no one is warm; And he who earns wages, Earns wages to put into a bag with holes.” Haggai 1:6

Another 75 Basis Points

On Wednesday, the Fed’s Federal Open Market Committee announced that it will again raise the federal funds rate by 75 basis points. According to the FOMC’s press release:

Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. …

The Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.

This is, by far, the most hawkish announcement yet out of the Powell Fed and no doubt reflects the fact the Fed has finally come to terms with the fact that inflation is not transitory—as the Fed long insisted—and is now impossible to deny. Last month, CPI inflation rose 8.2 percent, year over year, marking six months of year-over-year price inflation rates over 8 percent and near 40-year highs.

 

Moreover, in its summary of economic projections, many FOMC committee members said they expected the target policy rate to reach or exceed 4.25 percent this year, and exceed 4.5 percent in 2023.

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