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It would seem to us that the Fed is stalling its QT effort. Inflation will not materially decline unless the Fed materially shrinks the money supply. Looking at the Fed’s balance sheet it appears the Fed has stalled its QT effort, especially when one considers that the Fed had planned to reach a $95 billion per month QT run rate by September.
- The Fed is blinking: It would seem that the Fed has blinked in its fight against inflation based upon the fact that it has done little to pare its balance sheet in recent months. In fact, the Fed’s balance sheet expanded from July 6th to July 13th, from $8.891 trillion to $8.896 trillion, a $5 billion increase. If the Fed plans on sticking to its plan of reaching a $95 billion monthly QT run rate by September it will have a steep ramp in the weeks to come.
- The Fed is overly cautious: Our view is that the Fed is afraid of driving Treasury yields too high too quickly. At risk of sounding like a broken record, the Fed’s QT plan would see the Fed making a complete 180 degree turn from the world’s largest buyer of Treasuries and Government Agency securities to the world’s largest seller. This would obviously have a material impact on Treasury and Government Agency security prices (down) and yields (up).
- Our next book: This Fed under Chairman Powell does not have the stomach to fight inflation and will fail. The U.S. economy will experience muted Real GDP growth (approximately zero percent) with elevated inflation as measured by the CPI for the remainder of this decade. Our CPI expectation is 4% by 2025. A 2% CPI is nowhere in sight. Stagflation Is Here To Stay (Perhaps that will be the title of our next book). View our current book on Amazon (Click HERE).