Home About Archives RSS Feed

The Retired Investor: The Hawks Return

By Bill SchmickiBerkshires columnist
On Tuesday, Nov. 30, during testimony before the U.S. Senate Banking Committee, Jerome Powell, chairman of the Federal Reserve bank, did an about face on monetary policy. Powell appeared to take on a new mantle, that of the nation's chief inflation fighter, casting aside his former dovish stance towards continued easing of monetary stimulus. Investors are asking "what changed?"
 
"We're now looking at an economy that's very strong and inflationary pressures that are high," Powell said. He went on to say that it might be "appropriate to wrap up our purchases a few months earlier."
 
Powell was referring to the planned tapering of the Fed's monthly purchases of fixed income assets. Since March 2020, the Fed has purchased at least $120 billion in Treasury bonds, and mortgage-backed securities as part of an emergency monetary stimulus program to combat the effects of the pandemic on the economy.
 
Last month, the Fed, after months and months of preparing the market for a purchase reduction, finally announced they planned to reduce purchases by $15 billion per month until the purchase program ends sometime next summer. Investors, having taken that on board, were suddenly told this week that the timetable may be accelerated.
 
For weeks, central banks have been struggling with rising prices throughout the global economy. Several nations have already taken steps to rein in inflation by raising interest rates. Here in the U.S., the annual inflation reached its' highest level in 30 years two months ago. As inflation continues to climb and spread throughout the economy, the pressure for the Fed to do something has mounted.
 
Inflation, like almost everything else in this nation, has become a political football. Republicans have used the fear of inflation to scuttle the administration's Build Back Better spending proposal. At the same time, Democrats have argued that pulling back support for the economy until unemployment returns to its pre-pandemic levels would be a mistake. As it stands, the nation has recovered about 75 percent of the jobs lost, but there are still millions of Americans that have yet to return to the labor force.
 
The fly in the employment ointment continues to be the coronavirus. Each new variant of the virus delays further gains in labor force participation. Over the Thanksgiving weekend, for example, another variant called Omicron, presented itself with the first case discovered in California. Depending upon the outcome of this new threat, the risk to inflation could rise as supply chain problems worsen throughout global economies.
 
At this point, however, inflation is increasing its hold on more and more areas of the economy, regardless of the supply chains problems. "I think the risk of higher inflation has increased," Chairman Powell said, adding that he fears inflation will persist "well into next year."
 
Powell's testimony before Congress was his first public appearance since President Biden nominated him for a second term. As I mentioned, inflation has become a political problem, especially for the president. Was it an accident that Powell's stance on inflation altered just a week after his nomination?
 
No one knows what the two men discussed during their meetings, but it doesn't take a rocket scientist to imagine that the issue of inflation came up. Some think that Fed vice chairman, Lael Brainard, lost out for the top spot because she was perceived to be a little less hawkish on inflation.
 
Whether political or not, Jerome Powell's decision to tighten monetary policy in the months ahead, while the coronavirus continues to be a serious issue, heightens the risk to investors in the future. 
 
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Love Fuels Pittsfield Babe Ruth 13s' Run to World Series Semis
MassDOT to Resurface Adams' Howland Avenue
Parks Commission Supports Boat Wash Proposal at Onota Lake
Family Affair: Pittsfield Babe Ruth All-Stars Backed by Parents, Wider Community
Sheffield Resident Injured in a Motor Vehicle Accident
Berkshire Bank Foundation Awards 40 Scholarships
North Adams Planning Board Found in Violation of Open Meeting
The Classical Beat: At Summer's Apex, Great Music at Tanglewood
Police Advisory Committee Frustrated It Can't Review Estrella Report
Centuries-Old Tomb Opened, Repaired in Savoy
 
 


Categories:
@theMarket (418)
Independent Investor (451)
Retired Investor (103)
Archives:
August 2022 (2)
August 2021 (2)
July 2022 (7)
June 2022 (7)
May 2022 (7)
April 2022 (8)
March 2022 (9)
February 2022 (7)
January 2022 (7)
December 2021 (9)
November 2021 (7)
October 2021 (8)
September 2021 (9)
Tags:
Election Energy Oil Stock Market Retirement Markets Employment Commodities Debt Congress Europe Rally Banking Euro Jobs Greece Metals Federal Reserve Economy Fiscal Cliff Currency Banks Debt Ceiling Stocks Crisis Interest Rates Taxes Pullback Bailout Deficit Recession Stimulus Europe Selloff Japan
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Markets Gain Back Half This Year's Losses
The Retired Investor: Can You Put a Value on Your Dog's Life?
@theMarket: Fed-fueled Gains Support Markets
The Retired Investor: No End in Sight for Airline Agony
The Retired Investor: Local Gas Stations Suffer From High Fuel Prices
@theMarket: Market Beat Down
The Retired Investor: Public Sector Can't Compete in Tight Labor Market
@theMarket: More Market Gains Ahead, But for How Long?
The Retired Investor: China Tariffs on Deck
The Retired Investor: Streaming Comes of Age