The Fed’s Inflation Target in Peril
Federal Reserve officials are not mincing words: The central bank and its chair, Jerome Powell, believe the 2% inflation target is sacrosanct and will risk a recession and bear market to get there.
So why are markets rallying hard — as if Powell is about to soon cut interest rates, not raise them?
The answer is that many traders and investors are convinced what was once the least political layer of government — the Fed — has become among the most politicized. Powell, whose main job is to keep inflation low, will jettison the inflation target for something much more palatable to appease Dems in Congress and economists in the Biden administration.
It is fashionable in left-wing circles to accept inflation as necessary. Rising prices don’t matter so long as government budgets keep getting bigger.
How soon they forget the dreadful stagflation of the 1970s where the economy slowed while prices soared. It didn’t matter if you had a job. You couldn’t afford to put enough food on the table and gas in your car, much less buy a new one or eat in a restaurant.
So where is Powell’s head at?
Some stock traders believe Powell will cave on the 2% target for something higher, maybe much higher. AFP via Getty …