I have been warning that the Federal Reserve is the last independent central bank and despite all the hatred hurled at it from primarily the goldbugs, the real picture is starting to surface if anyone cares to look objectively. The Fed will increase the pace at which it’s pulling back its support for the COVID economy as inflation surges. Powell has said that he expects to raise interest rates three times next year in 2022 which is really a MAJOR departure from Europe, the Bank of England, and Japan.
This is effectively declaring war amounting to a sharp policy shift in contrast to the other central banks pleading with the Fed not to raise rates. Powell also said that he will shrink its monthly bond purchases at twice the pace it previously announced, ending QE altogether in March. You MUST understand that the US is the ONLY place for capital to flee and Powell is staring international capital flows straight in the eye.
By raising rates, Powell is NOT merely trying to fight inflation. He realizes that the inflows are intensifying and raising rates may steer some of that money into the bond market, which is the ONLY real market standing. By doing that, the money, he hopes, will be diverted from investing as in real estate and stocks which will help to cool those markets. So there is far more going on behind the curtain than meets the eye. This is declaring World War III in the financial markets.
Powell was asked at a news conference Wednesday what specifically had caused the Fed to pivot to a tighter credit policy. He said:
“It was essentially higher inflation and much faster progress in the labor market."
The key here was that Powell acknowledged the possibility that inflation WILL NOT decline as expected next year. This is because the Fed is now realizing that Europe is doomed and the real risk here, besides the shortages, is that there will be a massive capital flight to the dollar.
“There’s a real risk now, that inflation may be more persistent and that may be putting inflation expectations under pressure, and that the risk of higher inflation becoming entrenched has increased. I think part of the reason behind our move today is to put ourselves in a position to be able to deal with that risk.”
It has been the housing cost increases, which has also impacted apartment rentals in addition to homeownership, which make up about one-third of the consumer price index. We have a flight from the urban centers to the suburbs and flights from the high-taxed states like California and New York. Overall, housing costs have been rising at a 5% annual pace recently. Restaurant prices have jumped nearly 6% as labor shortages hit that industry in particular.
Be sure to read this companion piece. The money for COVID is ending and so, too, will the COVID hysteria in 2022. Inflation shall replace that horror.
