The IRA: Powell Fed Embraces Monetary Relativity

Author: Chris Whalen, Post Date: September 23, 2020

Chris Whalen quotes Bob Eisenbeis and others for his publication, The Institutional Risk Analyst, on financial and banking issues. Read this excerpt from a September 2020 edition or the full post linked below.

Cumberland Advisors Robert "Bob" Eisenbeis Ph.D. In The NewsCumberland-Advisors-Robert "Bob" Eisenbeis Ph.D. In-The-News

The idea of the FOMC deciding when average inflation targeting (AIT) has made up for periods of price deflation seems to stretch to the breaking point the elastic “necessary and proper” clause of the Constitution, which allows agencies of the federal government to take those actions required to implement the will of Congress. But the law still says “price stability.” Is it necessary for the FOMC to have AIT or merely convenient?

“The telling part of the problem with the new strategy came during the press conference,” notes Robert Eisenbeis of Cumberland Advisors, “when Chairman Powell struggled to answer several pointed questions about how long inflation would remain above 2%, how is “moderately above 2%” for inflation defined; how maximum employment is defined, why inflation above 2% didn’t show up in the SEP, and how and under what circumstances the asset purchases program might be stopped. All in all, few if any actual specifics were provided, which leaves us to wonder whether, at this time, the Committee simply hopes it can get inflation up, hopes it can achieve a 2% average rate, and hopes it can get back to full employment sometime in the future.”

Of note, the FOMC announced that it will continue its monthly asset purchases under this latest version of quantitative easing or QE. Chairman Powell, during the press conference, indicated that $80 billion would be in Treasuries across the curve and $40 billion in agency MBS, so as to support “the flow of funds to households and businesses.”

Read the full original post at the Institutional Risk Analyst site:

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