What the Feds "Should" Do. There is a time and place for gradualism in monetary policy, particularly when the unemployment rate is still above normal or when inflation is only a little above the Fed's long-term target. This is not that time and place.
It’s the Money! With every passing month, politicians and economists try to blame inflation on anything but excess money growth.
Will Russian Sanctions Lead China to Sell U.S. Debt? The US debt that China owns is more problematic for China than it is for the US. Moreover, if China sells US debt because it fears sanctions, then it will likely sell European debt as well. In the end, it’s not the US that has a problematic conundrum.
Thoughts on Ukraine. So far, things haven't unfolded as many thought they would. Supply-chain issues for the Russian military and formidable opposition are slowing Russia's advance. In addition, more sanctions and military help from countries around the world have given many hope that hostilities end early with Russia falling well short of its goals.
Sticking to Our Targets, For Now...The bottom line is that the winds of change are blowing hard in 2022: COVID is winding down, borders are in flux, and monetary policy is in for a major and long-overdue shift. In spite of these changes, we think equities are likely to rebound from recent strife and work their way higher this year. The bull market in stocks won't last forever. But, for now, it isn't at an end.
Russia and Rate Hikes...The financial markets have been on tenterhooks lately for two main reasons: Russia and rate hikes.
Not All That...rarely have we seen an economic report as misinterpreted as Friday's jobs report.
Rate Hikes Finally on the Way. The best reason to implement a larger Quantitative Tightening is that the Fed needs to counteract the excessive growth in the M2 measure of the money supply that is the root cause of higher inflation.
The 2021 Finish: Fast Growth, High Inflation. At present, we estimate that real GDP grew at a 5.7% annual rate in the fourth quarter. If we're right, then real GDP grew 5.2% in 2021 (Q4/Q4), the fastest pace for any calendar year since the Reagan Boom in 1984.
Who Gets the Blame for Inflation?... politicians across the political spectrum are working overtime to find someone to blame and attack. What they're missing is that there is no consistent historical relationship between higher spending, larger deficits, and more inflation.