We expect Federal Reserve Chairman Powell to reiterate: 1.) the Fed’s near zero interest rate policy for the foreseeable future, 2.) the Fed’s willingness for market intervention. Further, we expect the Fed to provide guidance concerning its CPI increase tolerance level. Historically that tolerance level has been 2%. We will clearly overshoot a 2% CPI increase given the Fed’s unprecedented expansionary monetary policy.
Eventually the Fed will have to choose between supporting the US Dollar (DXY) and zero interest rate policy. Until then it is fair to expect the Fed to:
- Continue to purchase Treasuries at a pace of approximately $125 billion per month;
- Continue to promote its various lending facilities;
- Continue to monetize the fiscal deficit;
- Monetize the next debt-funded fiscal “stimulus” deal.
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