The FED takes serious decisions accelerating inflation

Recent statements from Fed officials and analyzes by market veterans and economists point to a shift to an "average inflation" target where inflation above the central bank's usual 2% target would be tolerated. The US economy will fight disinflationary pressures, not inflation, says Fed's Powell

Markets expect the Fed to take an even more confrontational approach than in the Great Recession. The Fed and other global central banks have been trying to raise inflation for years, arguing that a low level of price appreciation is healthy for a growing economy. They also worry that low inflation is a self-feeding problem, keeping interest rates low and giving policymakers little room to loosen their policies during downturns.

In recent days, regional Fed Presidents Robert Kaplan of Dallas and Charles Evans of Chicago have expressed mixed support for the improved guidelines. In particular, Evans said he would like to keep rates unchanged until inflation rises by around 2.5%, which has not been the case for most of the last decade.

"We believe the Fed would publicly take inflation in the range of 2% to 4% as long overdue to compensate for inflation below 2% so long in the past," said Ed Yardeni, head of Yardeni Research. Yardeni said the approach would be "wildly stubborn" for alternative asset classes, particularly growth stocks and precious metals such as gold and silver. Guha said the Fed's moves would lead to "a sustained decline in real yields, a decline in the dollar, lower volatility, lower credit spreads, and rising equity prices."

As can be seen from the marketplace, investors made heavy bets that would be in line with inflation: record levels of gold prices, a sharp plunge in the US dollar, and a sharp rise in the price of TIPS, securities protected against sovereign inflation. TIPS funds saw net investor cash inflows over the six consecutive weeks, including $ 1.9 billion and $ 1.5 billion in the weeks of June 24 and July 1, and $ 271 million in the week ended July 29, according to Refinitiv.



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