The Chinese Have Their Own Policy ‘Dots’

The FOMC’s “hawkish” dots for their June 2021 assessment weren’t an acknowledgment of recent inflation data in the US. That’s how many are characterizing the change, modest as it actually was. Inflation is about emotion in most places, especially when CPI’s and PCE Deflators, a healthy dose of producer prices, all seem to point to an overheating economy on the verge of the long-predicted fiery blowout.

No, the Fed’s dots were again reiterating the central bank’s position that the price deviations we’re seeing right now are due to temporary factors. If anything, the dots like, say, recent behavior in commodities and broad cross-section of economic data further corroborate. A true spike for inflation in the first then second halves of 2021 would’ve made a whole lot more dots move a lot farther than what little so few did.

Instead, the dots are indicating US central bank officials growing more confident that downside risks are abating; contrasted to the narrative upside inflation risks are rising. Over the next few years, with almost certainly fewer perhaps zero COVID cases the potential for another setback due to governmental overreaction has seriously diminished. That’s not inflationary, it would be seriously good.

While I think the Fed – and I can’t believe they’re being reasonable this time at least in this case – is right about “transitory” they are simultaneously making the same mistake as officials had committed back in 2018 and eventually 2019. Downside risks aren’t just about corona case counts, rather they are more likely to take on global factors as they had a few years ago.

That’s both sides of low bond yields – ignoring the current CPI’s because there is every reason to suspect less of an upside after the way the global economy has performed up until almost the middle of 2021. As the months pass by, regardless of US inflation figures, the evidence piles up that the post-2020 rebound’s best days may already be behind us.

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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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