THE PUNCH BOWL
Issue # 53
FEDERAL RESERVE:
Yesterday the Federal Reserve announced that interest rates shall remain unchanged and it looks like that will be the case for the foreseeable future. The dot plot below indicates that it is unlikely that rates will increase over the next two years, the consensus is that rates will increase at some point in the “longer run”…
Three key takeaways from the FOMC statement:
The Fed is forecasting that real gross domestic product will grow 6.5% in 2021, well above its previous estimate of 4.2% at the December 2020 meeting.
The Fed is forecasting inflation at 2.4% this year, also well above its previous estimate of 1.8% at the December 2020 meeting.
The Fed estimates the unemployment rate will fall to 4.5% in 2021, below the previous estimate of 5% at the December 2020 meeting.
The Federal Reserve also announced that the Quantitative Easing program remains unimpeded and full steam ahead. From the Federal Reserve statement,
“In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”
In other words, the Punch Bowl is still out and the Fed is still trying to get the party started. The Big Question is, when will the Fed feel compelled to take the Punch Bowl away?
As former Fed Chair William McChesney Martin Jr. said, “the Federal Reserve is in the position of the chaperone who ordered the punch bowl removed just when the party was really warming up. If we fail to apply the brakes sufficiently, and in time, we shall go over the cliff.”
With the National Debt crossing $28 trillion ($480k per US citizen), I reckon that we must be closer to the end of the party than the beginning.
PODCAST:
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Be well and stay safe. Sean Bill / MacroCrunch / Twitter