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The Dollar Will Break Inflation

The headline inflation rate, or Consumer Price Index rose +5.3% over the past twelve months in August as the annualized rate of change in the index appears to be peaking. Investors and consumers are convinced inflation will continue to rise even higher much like it did in the 1970s. Few realize, the dollar is slowly … Read more

Taper Tantrum

Two weeks ago, Fed Chair Powell suggested during the Federal Open Market Committee (FOMC) press conference the FOMC board was very close to tapering its purchases of Treasury and Mortgage-Backed Securities. Initially, bond prices rallied on the news, then were slammed lower over the following two days as investors changed their view on how a … Read more

Debt Ceiling Fears

Fears over a technical default have sent Treasury yields higher this week as investors and money managers reduce uncertainty from their portfolios. While the United States has never defaulted on its debts and is unlikely to anytime soon, the recent decline in bond prices and rise in Treasury yields indicates the market believes it is … Read more

Consumer Confidence is Crashing

Consumers as less confident lately and for good reasons. The broad economy is slowing, the pandemic has not ended, and the extended unemployment benefits are gone. What hope they do have is there are nearly eleven million jobs openings according to the government but one in six of those jobs is a low-paying hospitality job. … Read more

The Fed’s SRPs Are Working

In late July the Federal Open Market Committee (FOMC) made the Federal Reserve’s domestic and international repurchase agreement facilities permanent. Referred to as Standing Repo Programs (SRPs), many believed the FOMC made these facilities permanent in anticipation of a balance sheet taper. I thought the SRPs had nothing to do with a potential balance sheet … Read more

Rising Consumer Prices Cause Recessions

Interestingly, every recession since the 1950s was led by a rapid increase in consumer prices. During and following each of those recessions, the rate of consumer price increases rapidly fell and during the Great Financial Crisis, even contracted. Yet, every time consumer prices start rising, most believe this is finally the beginning of a secular … Read more

Will the Fed Taper?

Investors, analysts, and money managers are obsessed with whether the Fed will start tapering its purchases of U.S. Treasury and Mortgage-Backed Securities soon. This obsession stems from the false belief the Fed’s asset purchases are responsible for the rapid rise in inflation. The shutdown of the global economy, tens of millions in job losses, and … Read more

The Fed’s Brilliant Solution

There is a major shortage of collateral, or short-term Treasury Bills to the tune of over a trillion dollars a day. The U.S. Treasury is not making much of an effort to solve this problem by issuing a sufficient amount of Treasury Bills. Without support from the U.S. Treasury, the problem of the collateral shortage … Read more

History of Monetary Policy

In the 1940s as World War 2 was ending and the world agreed to make the dollar the new reserve currency, the Federal Reserve was engaged in a battle to keep interest rates low. To accomplish their goal, the Fed fixed short-term and long-term rates, then engaged in massive open-market operations, or what we refer … Read more

The Fed’s Latest Scheme

At the July Federal Open Market Committee (FOMC) meeting the Fed announced the establishment of two standing repurchase agreement (repo) facilities. Under these facilities, domestic banks and foreign official institutions will be able to borrow cash from the Fed and post the Treasury securities, agency debt securities, and agency mortgage-backed securities as collateral. From a … Read more