When Will Powell’s Fed Have To Blink On Policy?


1. US GDP Comes Roaring Back – Big Year Ahead

2. Fed Sticks With ZIRP Despite Stronger Economy

3. Fed Believes Expected Rise in Inflation Temporary

4. The Trend in Commodities is Also Worth Watching

Overview - $6+ Trillion in New Debt, Fed Policy, Etc.

It was ever so tempting to devote today’s letter to a discussion of President Biden’s latest massive government spending, which he proposed Wednesday night in his “First Hundred Days” speech before Congress. In it, he called for more trillions in government spending and giveaways, in addition to the trillions he has already asked for.

The total he wants so far is a monumental, unprecedented $6 trillion – not including annual budget deficits of $1 trillion or more for the foreseeable future! And he’s made it clear, he is not done yet.

I’ll offer some limited comments and analysis on this travesty below, but I’ll keep them brief since I know I’m “preaching to the choir” with the vast majority of my clients and readers. Then I’ll move on to more market related topics as we go along.

For example, the Fed Open Market Committee (FOMC) which sets monetary policy met last Tuesday and Wednesday and voted unanimously to keep its key interest rate in a range of 0.00%-0.25% – to the surprise of no one. At his press conference afterward, Fed Chairman Jerome Powell assured the financial press the Fed is committed to keeping rates near zero indefinitely, despite acknowledging the economy is heating up and higher inflation is coming.

Yet while the FOMC seems intent on following such an accommodating “Zero Interest Rate Policy” (ZIRP), the growing question/concern is whether the Fed can really tolerate a screaming economy (+6.4% 1Q GDP) and potentially much higher inflation later this year and next. Increasingly, Fed-watchers are asking: When will the Fed have to blink? That’s what we’ll talk about today.

Following that discussion, I’ll share some thoughts regarding spotting rising inflation in the months ahead. While the Fed believes any such rise in inflation will be temporary, we should keep a close eye on it in any event.