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2022-01-11

The US Federal Reserve has switched almost overnight from friend to foe

Morgan Stanley says investors were assuming just five months ago that there would be no US rate rise until April 2023. Today markets are pricing the first rise within a couple of month

Quantitative tightening (QT) is coming much sooner than expected.

The jump in US headline inflation to 6.8pc is what finally caused the dam to break at the Fed, complemented by the 23pc rise in house prices over the last year, more extreme than the subprime bubble before 2008.

Powell’s attempt to unwind asset purchases by $50bn a month in late 2018 set off violent moves on Wall Street and led to global contagion. He capitulated.

The FAAMG quintet of Facebook, Apple, Amazon, Alphabet, and Microsoft have yet to buckle but they too are vulnerable to a profits squeeze. They have ballooned to $10 trillion of market capitalisation during Covid

Lord Mervyn King, ex-Governor of the Bank of England, says “the intellectual foundation of central bank policy” has been found wanting.

Money has disappeared from modern models of inflation.

https://mcusercontent.com/78302034f23041fbbcab0ac6d/files/e7f2eb61-cd67-08cb-7100-778606807d6e/Lord_King_J_IIMR_Annual_Public_Lecture_J_November_2021.pdf


Why Do We Think That Inflation Expectations Matter for Inflation?

Jeremy B. Rudd Federal Reserve Board September 23, 2021

The paper began with a quote from Dashiel Hammett: “Nobody thinks clearly, no matter what they pretend. That’s why people hang on so tight to their beliefs and opinions.”

Among the false beliefs is the Fed assumption that inflation expectations give prior warning of actual inflation.

https://www.federalreserve.gov/econres/feds/files/2021062pap.pdf


Ambrose Evans-Pritchard Telegraph 11 January 2022

https://www.telegraph.co.uk/business/2022/01/11/end-liquidity-supernova-central-banks/

 

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