Inflation Virus Strikes Fed (Part 2) John Mauldin Thoughts From Frontline James Graff 732 500 MUTE Advisors Mortgage Group, L.L.C. NMLS# 33041

John Mauldin: Inflation Virus Strikes Fed

PART 2

Ideas Have Consequences

"One Hell of a Dilemma"

The Unintended Consequences of Federal Reserve Policy

https://youtu.be/CpJLYkH7j1Q

Get mortgage help - No hassle/obligations:

JGraff.AdvisorsMortgage.com

James Graff NMLS# 1974758

PLEASE NOTE The Fed announcements made some of this clearer and some of it moot:

According to MBS Highway:

"The Fed announced they will leave the federal funds rate unchanged as expected and don't see a change happening until after 2023.They will maintain an:

accommodative policy until their inflation target of 2% is reached.They elaborated slightly on their new"average inflation"methodology,saying that they would allow inflation to run moderately above 2% for "some time" so that inflation averages 2% over time...but they are still not very clear. While they said this, the projections from Fed members show that they don't see inflation reaching 2% till 2023.

Additionally, over coming months, the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning,which we expected.

Here are the Fed's projections,by year,for the unemployment rate and Core PCE Inflation:

Unemployment Rate Projections:

2020:7.6%

2021.5.5%

2022:4.6%

2023:4%

Inflation Projections:

2020:1.5%

2021:1.7%

2022:1.8%

2023:2%

Our good friend, Peter Boockvar, shared "Also,if PCE ends up at 1.7-1.8% for the next few years, the CPl will be above that. So we might have years of 2%+ CPI numbers and the Fed won't want to raise rates. It would be the Arthur Burns experience alll over again."

John Mauldin:

"...you will find an overview, the statement itself, a marked guide highlighting changes since the last review (very handy), Powell’s Jackson Hole presentation, speeches by Vice Chair Richard Clarida and Governor Lael Brainard, and a bunch of background documents.

Why such elaborate explanation? Because the words don’t just explain the policy. The words are the policy. They do the work. The Fed wants us to believe 2% inflation is a worthy goal and that the Fed will make it happen. If we do, the Fed will have accomplished what it wants.

Price Instability

My friend Peter Boockvar may be one of the fastest thinkers I know. Every day, he digests the latest economic data and central bank statements and then issues a quick-take analysis,usually within an hour (and sometimes within minutes). I really don’t understand how he does this, but it’s quite useful.

So the very same morning the Fed announced this policy, Peter was out with a short but incisive essay on “The 10 Flaws of Inflation Symmetry.” Some excerpts:

Where inflation was in the past should have no bearing on where it should be allowed to go in the future. Is zero inflation one year and 4% the next the new definition of 'price stability'?

Letting inflation run above 2% for a period of time hurts the least able to afford it the most. In other words, LOWER real wages is a growth depressant.

There is nothing to equate low inflation with low growth and higher inflation with higher growth.

Longer term interest rates are not just going to sit there and let inflation run hot, they will tighten for the Fed. This would then hurt the housing sector and any over indebted company.

Peter starts where I would, with the glaring inconsistency between the Fed’s “price stability”statutory mandate and its official policy promoting the opposite. And that reducing real wages by raising living costs hurts most of the people the Fed supposedly serves.

But more important, Peter notes how this policy is self-defeating. If the Fed by keeping short-term rates low somehow gets inflation moving toward its goal, long-term rates will stillrise to reflect the greater inflation risk. This will raise mortgage rates, make it harder for companies to issue equity, and otherwise stifle economic growth.

Why anyone should want that outcome is unclear, but it’s where the Fed wants to take us..."

HOME LOANS James Graff 732-500-MUTE

Advisors Mortgage Group, L.L.C. NMLS#33041

2899 Highway 35 North Hazlet N.J. 07730

In 34 states of The United States of America

Cash out refinance, debt consolidation, renovation loan, reverse mortgage, pre-qualify, pre-approval letter, FHA VA USDA HELOC HECM Fannie Mae Freddie Mac...