The Federal Reserve’s Policy Output

  • The Fed’s money creation since 2020 caused a massive supply/demand imbalance, pushing annual CPI inflation from 2.3% as of December 2019 to 8.5% in March 2022.
  • The Fed prioritized restoring employment for too long before turning its attention to inflation.
  • With wages not rising enough to offset inflation, lost income by workers more than offsets income gains for the newly employed.
  • The 8.5% inflation rate has lowered living standards for an estimated 170 million Americans.
  • The creation of this environment, indicates the Fed has no choice but to let the unemployment rate rise in order to restore real wage and salary growth.

The thought to consider is that now there may be good value in Treasury bonds. With yields having risen a full percentage point this year there are some indications inflation will have an opportunity to reduce. However, should the Federal Reserve cease in their efforts to calm inflation before it has been fully restrained, interest rates will rise again and likely beyond current levels.

We remain wary and will update as indicated.