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Re: sharpshorts post# 37624

Saturday, 05/28/2022 3:58:35 PM

Saturday, May 28, 2022 3:58:35 PM

Post# of 37921
From Doug Noland in this week's Credit bubble Bulletin: Does the Fed have the resolve necessary to mount a serious inflation fight, one that would invariably unfold with significant market and economic turmoil? That the leading FOMC “hawk” would last week raise the possibility of rate cuts next year suggests some weakened knees. Bullard: “The more we can front-load and the more we can get inflation and inflation expectations under control, the better off we will be. In out years -- ’23 and ‘24 -- we could be lowering the policy rate because we got inflation under control.”

My Comment: The more the Fed signals that they are nervous about the stock market decline, the more emboldened speculators will be to drive prices higher. If the Fed adopts a stop and go approach to controlling inflation, inflation will get out of control. I also think inflation is due to supply issues (Covid Ukranian war, labor shortages, China lockdowns, climate change, government spending, etc) which the Fed has no control over, so rate increase will not tame inflation.

I also found the following comments from Bill White, the former chief economist at the Bank for International Settlements, interesting:

1) Bill’s top fear is the Federal Reserve may get so far behind the curve it can’t ever catch up. This could happen if inflation rises faster than the Fed hikes. In that case, real interest rates would actually be moving lower . That’s when people start fleeing a currency. Then inflation gets very high, and worse things follow. He didn’t predict this but thinks it is possible. This isn’t just a US problem. It is potentially even worse in Europe and much of Asia.]

2) Asked about China, Bill said China has basically tried to follow the Japanese postwar growth model, using low exchange rates to generate exports. Beijing now wants to change this, but can’t, because the old regime is of great benefit to certain people and because the transition is hard. They will keep trying but will ultimately fail.
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