The Fed’s Pivot: The Return of Easy Money and the Inflation Storm Ahead

 Federal Reserve's latest actions and plans, highlighting a potential shift back to easy money through quantitative easing (QE). This change comes in response to economic pressures, job cuts, and rising mortgage rates, suggesting significant implications for inflation and markets.

1. Jerome Powell's Announcement: Fed Chair Jerome Powell indicated at a recent conference that there would be an end to the current phase of quantitative tightening (QT), indicating the Fed might soon restart money printing. He noted that they are nearing a point where reserves are considered ample, leading to restarting balance sheet expansion.

2. Job Market Crisis: There have been significant job cuts in the U. S., with over 946,000 layoffs announced this year — the highest rate since 2020. This is forcing the Fed to reconsider its strategies, as the job market's decline cannot be remedied through interest rate cuts alone.

3. Challenges for Homeowners: Many Americans are struggling with rising mortgage rates (around 6.3%) and high inflation, leading to increased searches for mortgage assistance. This situation exacerbates financial hardships, making it imperative for the Fed to act decisively.

4. Limitations of Quantitative Tightening: Although the Fed claims to have reduced its balance sheet by $2.2 trillion since June 2022, the remaining $6.6 trillion is still significantly above pre-pandemic levels (approximately $4 trillion). This minimal impact on cash levels before resuming QE is recognized as inadequate.

5. Risk of Inflation: The Fed's anticipated return to QE, while starting from a high balance sheet level, raises concerns about the potential for hyperinflation. Restarting money printing from an already bloated balance sheet may lead to severe currency devaluation.

6. Market Implications: Analysts predict that the Fed's shift back to easy money could create a bubble in commodity markets, particularly for monetary metals like gold and silver. The current low prices of mining stocks are presented as a buying opportunity for investors.

The Federal Reserve's decision to halt quantitative tightening and likely resume quantitative easing signals a significant shift in economic policy. With worries about job losses and rising living costs, the potential impact on inflation could be profound. Investors may need to prepare for possible changes in the economic landscape, especially concerning commodity markets.

https://internationalman.com/articles/the-feds-pivot-the-return-of-easy-money-and-the-inflation-storm-ahead/