The Fed’s Forever War Against Savers
The war on savers rages into its second decade.
And yesterday Field Marshal Powell vowed indefinite bombing, shelling, machine-gunning and bayoneting… until the white flag rises over enemy lines.
It is war to the knife… and from the knife to the hilt.
The only peace terms he will accept are these:
Complete, undiluted and unconditional surrender.
These hoarding hellcats must be vanquished. And their cities must be sowed with salt… as triumphant Rome vanquished Carthage… and sowed it with salt.
Here is yesterday’s dispatch from headquarters:
We are going to be deploying our tools — all of our tools — to the fullest extent for as long as it takes… We are not thinking about raising rates; we are not even thinking about thinking of raising rates.
Zero Rates Through at Least 2022
Powell and staff indicated they will clamp rates to zero, or near zero… through 2022.
We wager rates will remain clamped to zero longer yet.
Deflation hangs over the battlefield like a thick cloud of chlorine gas. And the Federal Reserve’s 2% inflation target appears more wishful than ever.
We do not expect any rate hikes until it lifts. And we hazard little will lift until 2022 has passed.
Meantime, Marshal Powell reminded us yesterday that the pre-pandemic 3.5% unemployment rate yielded little inflation.
He suggested, that is, that unemployment could sink below 3.5% before inflation menaced.
But it could be a long, long while before unemployment drops to pre-pandemic levels.
As we recently noted:
After the last financial crisis, over six years lapsed before employment fully recovered — 76 months.
If we assume a parallel recovery… pre-pandemic unemployment would return in 2026.
Of course comes our disclaimer: Pre-pandemic unemployment would return before 2026.
We simply do not know. Nor does anyone.
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