Some Specifics Of ‘Transitory’

Silver linings have been hard to come by lately, especially last year. Twenty-twenty was a total washout in almost every way imaginable, and that’s an understatement. Still, there were some small signs of genuine progress such as Jay Powell’s thorough contribution to QE debunking. Bank reserves went sky high while practically nothing else did (other than equities), certainly not inflation.

No, if there is to be a breakthrough on that front it is widely understood to be Uncle Sam’s doing. All that bond-buying by the Federal Reserve and the correlations all line up with direct aid to the economy, including helicopters. Fiscal has been the dominating factor at least so far as “stimulus” has been concerned. Aside from reopening itself, the details leave little doubt as to who’s really doing what.

When IHS Markit reported its flash Manufacturing PMI estimate for April 2021 last Friday, at a record high of 60.6 its elevation as well as the way it achieved it could not have been QE-driven. Reopening plus Biden, these had been the impetus driving Markit’s big top (as well as the ISM’s for March reported earlier in the month).

Backed up by separate spending estimates, more so the volatility and when these ups and downs have occurred, it’s very consistent with the fiscal side rather than monetary.

Everyone’s big hopes, pinned in the form of inflation confirming them, reside inside the US Treasury. This is not to say Jay Powell is bitter; far from it, he still has the stock market with which to play “money printer” where unshakable belief is never in short supply. Here the Fed views its own contributions as indirect (record share prices, in theory, boosting consumer and employer feelings).

Given these facts, the Chairman like the Committee he leads has been both restrained as well as resolute on the inflation question. They keep using the word “transitory” and for the right reasons this time (unlike 2013-19; but very much like when former Chairman Bernanke used the same in 2011-12).

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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