Inflation Huge: Jay Powell Did Blink, But It Had Nothing To Do With ‘Taper’

A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.

Like Bernanke in 2013, the word “taper” itself doesn’t appear if only because it doesn’t have to. The message here was received loud and clear.

Was it much of a message?

This is nothing new; at times like these, reflationary times, policymakers make the same statement. If things go well, the Fed adjusts. That was the same thing the FOMC said repeatedly throughout 2018, only that time they actually intended to act (though they never needed to because it was all wrong).

What was actually new in these minutes, and far, far more noteworthy as well as relevant to the reasons why there hasn’t been inflation – and not likely to be, judging by bonds and yields – was where Jay Powell and crew really blinked.

Abundant reserves.

The big one, so far as conventional policy and the convention written up surrounding it. I’ve personally written about reserves so many times I can actually feel your eyes roll all the way into the back of your head each time when any of you open up our website and find my latest on that very topic. I’m very much aware of how it appears as not just déjà vu, it comes off as mindlessly obsessive.

Obsessive, yes, but far from mindless. Quite reasonably, bank reserves deserve the constant refutation, sitting as they are at the heart of this gross misconception causing so much misery.

The Fallacious Doctrine of ‘Abundant Reserves’

There absolutely had been abundant reserves during the worst of the 2008 crisis. The fact that it didn’t make a lick of difference should have been everyone’s first clue. Abundant reserves only grew more abundant still into 2011, yet 2011 turned out to be perilously too much like 2008 had been.

There were abundant reserves yet again during the March 2020 repeat crisis – as if we needed still more proof. Something instead about T-bills.

In each of these cases, as well as the others I haven’t listed, it had become very clear how there hadn’t been enough collateral. Reserves were largely irrelevant and the world has suffered immensely for it. “Money printing.”

When I refer to Jay Powell having blinked in these April 2021 minutes, I did not mean with regard to that nothing “taper” clause in their statement. Instead, what I’ve quoted below is the only thing that mattered in any of the prolonged FOMC text, and it echoes through past time past today and will reverberate well into the future:

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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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