{"id":57441,"date":"2021-04-12T07:29:32","date_gmt":"2021-04-12T12:29:32","guid":{"rendered":"https:\/\/olduvai.ca\/?p=57441"},"modified":"2021-04-12T07:29:32","modified_gmt":"2021-04-12T12:29:32","slug":"fed-and-treasury-steer-their-unsinkable-ship-toward-iceberg","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=57441","title":{"rendered":"Fed and Treasury Steer Their Unsinkable Ship toward Iceberg"},"content":{"rendered":"<h3 class=\"post_title\"><a href=\"https:\/\/thegreatrecession.info\/blog\/fed-and-treasury-steer-their-unsinkable-ship-toward-iceberg\/\">Fed and Treasury Steer Their Unsinkable Ship toward Iceberg<\/a><\/h3>\n<div class=\"singlepost entry\"><img loading=\"lazy\" decoding=\"async\" class=\"attachment-single-post-thumbnail size-single-post-thumbnail wp-post-image\" src=\"https:\/\/thegreatrecession.info\/blog\/wp-content\/uploads\/Sinking-Titanic.jpg\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" srcset=\"https:\/\/thegreatrecession.info\/blog\/wp-content\/uploads\/Sinking-Titanic.jpg 500w, https:\/\/thegreatrecession.info\/blog\/wp-content\/uploads\/Sinking-Titanic-300x224.jpg 300w, https:\/\/thegreatrecession.info\/blog\/wp-content\/uploads\/Sinking-Titanic-150x112.jpg 150w\" alt=\"Illustration of the Titanic sinking with iceberg in background\" width=\"500\" height=\"374\" \/>This past week we got to observe Fed Chair Jerome Powell and the US stock market <em>and<\/em>the US bond market do everything I said they would do in their complicated shuffle of ships-and-icebergs:<\/p>\n<blockquote class=\"wp-block-quote\"><p>\u201cI\u2019m sure many helium-headed stock investors believe the lilly-livered Fed will turn tail and run from its goal of letting inflation rise as soon as bonds begin to clobber stocks more seriously\u2026. I believe the Fed is more committed than ever to raising inflation as it has been saying it wanted to do for years.\u201d<\/p>\n<p><cite>\u201c<a href=\"https:\/\/thegreatrecession.info\/blog\/stocks-in-bondage-but-fed-not-fazed\/\">Stocks in Bondage but Fed Not Fazed<\/a>\u201c<\/cite><\/p><\/blockquote>\n<p>While bond yields had already begun to rise and compete against stocks, the Fed stayed the course, iceberg dead ahead. As a result, longterm bond interest rose even more because the Fed did nothing to jawbone the idea of increasing its bond-buying QE to take interest rates back down (which it accomplishes by purchasing US government bonds from banks to take them off the market, putting them on its own balance sheet).<\/p>\n<p>You see, the Fed is \u2014 I believe \u2014 caught in its own catch-22. Usually, to lower interest (in order to stimulate the economy and hit the higher inflation number the Fed says it is targeting), the Fed would buy more bonds; however, buying bonds and adding them to its balance sheet tends to create more money in the system, and the bond market is already afraid of rising inflation because much of the new money is now going into the hands of average people. (This game only worked when all new money was going into the stock market.)<\/p>\n<p>As a result, aiming for higher inflation by purchasing more bonds will cause the reinvigorated bond vigilantes to up their demand on bond yields to cover inflation, making it impossible to lower longterm yields by purchasing bonds.<\/p>\n<p>&#8230;click on the link above to read the rest of the article&#8230;<\/p>\n<p>&nbsp;<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Fed and Treasury Steer Their Unsinkable Ship toward Iceberg This past week we got to observe Fed Chair Jerome Powell and the US stock market andthe US bond market do everything I said they would do in their complicated shuffle of ships-and-icebergs: \u201cI\u2019m sure many helium-headed stock investors believe the lilly-livered Fed will turn tail [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[303,6632,431,534,11042,3650,5453],"class_list":["post-57441","post","type-post","status-publish","format-standard","hentry","category-economics","tag-fed","tag-financial-market","tag-interest-rates","tag-monetary-policy","tag-the-great-recession-blog","tag-us-federal-reserve","tag-us-treasury-department"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57441","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=57441"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57441\/revisions"}],"predecessor-version":[{"id":57442,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57441\/revisions\/57442"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=57441"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=57441"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=57441"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}