Connect with us

Government

The Fed Is Planning Another Ultralong Period of Ultralow Rates

The Fed Is Planning Another Ultralong Period of Ultralow Rates

Published

3 years ago

on

Jerome Powell fielded questions from reporters Wednesday, and he made it clear the Fed is a long, long way from abandoning its current dovish policy stance. The Fed plans to keep interest rates near zero, while monetizing US debt, financing zombie companies, and pouring new dollars into the market through balance sheet purchases. But even that may not be enough, and the Fed is now hinting that even more fiscal support may be necessary.

Let's look at some of the details.

Interest Rates

When asked about interest rates, Powell replied:

With regard to interest rates, we now indicate that we expect it will be appropriate to maintain the current zero to 0.25% target range for the federal funds rates until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.

This basically means ultralow rates from now until at least 2023. There’s no surprise there. Following the 2008 financial crisis and Great Recession, the Fed kept the target federal funds rate at 0.25 percent for 83 months, before slowly allowing rates to inch upward in 2015.

For the last five years of that period, the Fed generally maintained that the economy was “strong,” “strengthening” or generally doing well. The fact that the Fed refused to allow rates to move upward in this period hinted at the true weakness of the economy of that period, however.

We’re now just six months into the current period of target rates at 0.25 percent, and its now more implausible than ever to claim the economy is doing well. There are still more than 12 million Americans currently collecting unemployment checks, and as of last week, nearly eight hundred thousand workers filed new unemployment claims. As of late August, 30 to 40 million Americans were estimated to be at risk of eviction in coming months.

Not surprisingly, then, the fed expects it to be a while before “full employment” is again achieved, and as Powell notes: “We expect to maintain an accommodative stance of monetary policy until these outcomes, including maximum employment, are achieved.”

The Balance Sheet and Other Tools

But beyond forcing down interest rates for 6 or more years —as happened during the last cycle—what else can the Fed do?

Powell seems to believe there’s plenty:

First of all, we do have lots of tools, we’ve got the lending tools, we’ve got the balance sheet, we’ve got forward guidance. There’s still plenty more that we can do. We think that our rate policy stance is an appropriate to support the economy. We think its powerful....But again we have the other margins [that] we can still use. So no, certainty we’re not out of ammo.

Certainly, there’s no lack of lending tools available, and the Fed continues to be in the business of picking winners and losers using newly minted money. In many cases, these lending programs are simply bailout instruments, although these are officially regarded as “loans. ” They are essentially tools used to bailout zombie companies and other institutions that can’t cash flow in a normal market due to mismanagement, but which have been deemed too big to fail.

And then, of course, Powell is sure to mention the balance sheet.

This is certainly one of the areas where some of the most dramatic change can be seen, and the Fed’s balance sheet has again surged to over $7 trillion in recent days, reaching to 7.01 trillion as of September 9.

As we can see in the second graph, total Fed assets were under one trillion until late 2008 when the Fed began buying up assets no one wanted anymore in order to keep too-big-to-fail institutions afloat. It also bought assets such as US treasury debt to keep interest rates low. It made these purchases for its balance sheet primarily by creating new money out of thin air and spending it.

In the decade following 2008, the Fed vowed it would reverse course and sell its assets, and pull those trillions of new dollars back out of the economy.

It’s obvious at this point that’s never going to happen, and the Fed is now in the business of monetizing the US government’s debt while creating artificial market demand for poorly performing or nonperforming assets held by the nation’s financial institutions.

Turning toward Fiscal Policy

That’s where we are now, and its difficult to imagine the Fed diverging from this course under anything even resembling current conditions. Given the current fragility of the market—fragility created by the Fed’s long-term commitment to financialization and propping up financial institutions that made bad bets—the Fed can’t abandon its current policy of “easy money forever.” To do so would expose the sheer number of overleveraged borrowers that absolutely rely on ultralow interest rates to make their next debt payment and thus avoid default. Moreover, the Fed can’t allow interest rates to increase because this would lead to massive cuts to the Federal budget as Congress is forced to find ways to pay debt service on its rapidly growing $26 trillion debt.

But even with all this in place, there are fears in DC that it won’t be enough. Thus, the Fed is now being asked about how much “fiscal support” will be necessary from Congress. By “fiscal support,” we mean more unemployment checks, more direct bailouts and “forgivable loans” from Congress. We mean more US government spending in general, perhaps on infrastructure, military projects, wars, and other programs.

When Powell was asked about this yesterday, he replied:

My sense is that more fiscal support is likely to be needed. Of course, the details of that are for Congress, not for the Fed. But I would just say there are roughly 11 million people still out of work due to the pandemic and good part of those people were working in industries that are likely to struggle. Those people may need additional support as they try to find their way through what will be a difficult time for them.

Economists, especially Fed-enamored economists, have long pooh-poohed fiscal policy as inferior to monetary policy and as too slow. So the fact we’re now asking how Congress can support the Fed with fiscal policy suggests the Fed really is running out of options.

But is fiscal policy really all that distinguishable from monetary policy at this point?

After all, it’s not like Congress—should it wish to spend another trillion dollars—can come up with another trillion in tax revenues. Nearly all of the new stimulus spending being pushed by Congress in recent months has been paid for with deficit spending. This requires selling a lot of government bonds. And that should also mean rising interest rates for US debt as new debt floods the market. But why isn’t that happening? It’s because the Fed is buying up a lot of new debt to keep interest rates low.

Thus the line between monetary and fiscal policy becomes blurry. If new fiscal spending is mostly deficit spending—and a lot of that new debt is bought up by the Fed—fiscal policy just becomes another extension of monetary policy.

This may be where we're headed, but it is perhaps one of those taboos topics we’re not supposed to mentions on Capitol hill.

Read More

Related Topics:

Continue Reading

Government

Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

Published

11 hours ago

on

March 9, 2024

By

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

Read More

Continue Reading

Government

Walmart joins Costco in sharing key pricing news

The massive retailers have both shared information that some retailers keep very close to the vest.

Published

13 hours ago

on

March 9, 2024

By

As we head toward a presidential election, the presumed candidates for both parties will look for issues that rally undecided voters. 

The economy will be a key issue, with Democrats pointing to job creation and lowering prices while Republicans will cite the layoffs at Big Tech companies, high housing prices, and of course, sticky inflation.

The covid pandemic created a perfect storm for inflation and higher prices. It became harder to get many items because people getting sick slowed down, or even stopped, production at some factories.

Related: Popular mall retailer shuts down abruptly after bankruptcy filing

It was also a period where demand increased while shipping, trucking and delivery systems were all strained or thrown out of whack. The combination led to product shortages and higher prices.

You might have gone to the grocery store and not been able to buy your favorite paper towel brand or find toilet paper at all. That happened partly because of the supply chain and partly due to increased demand, but at the end of the day, it led to higher prices, which some consumers blamed on President Joe Biden's administration.

Biden, of course, was blamed for the price increases, but as inflation has dropped and grocery prices have fallen, few companies have been up front about it. That's probably not a political choice in most cases. Instead, some companies have chosen to lower prices more slowly than they raised them.

However, two major retailers, Walmart (WMT) and Costco, have been very honest about inflation. Walmart Chief Executive Doug McMillon's most recent comments validate what Biden's administration has been saying about the state of the economy. And they contrast with the economic picture being painted by Republicans who support their presumptive nominee, Donald Trump.

Walmart has seen inflation drop in many key areas.

Image source: Joe Raedle/Getty Images

Walmart sees lower prices

McMillon does not talk about lower prices to make a political statement. He's communicating with customers and potential customers through the analysts who cover the company's quarterly-earnings calls.

During Walmart's fiscal-fourth-quarter-earnings call, McMillon was clear that prices are going down.

"I'm excited about the omnichannel net promoter score trends the team is driving. Across countries, we continue to see a customer that's resilient but looking for value. As always, we're working hard to deliver that for them, including through our rollbacks on food pricing in Walmart U.S. Those were up significantly in Q4 versus last year, following a big increase in Q3," he said.

He was specific about where the chain has seen prices go down.

"Our general merchandise prices are lower than a year ago and even two years ago in some categories, which means our customers are finding value in areas like apparel and hard lines," he said. "In food, prices are lower than a year ago in places like eggs, apples, and deli snacks, but higher in other places like asparagus and blackberries."

McMillon said that in other areas prices were still up but have been falling.

"Dry grocery and consumables categories like paper goods and cleaning supplies are up mid-single digits versus last year and high teens versus two years ago. Private-brand penetration is up in many of the countries where we operate, including the United States," he said.

Costco sees almost no inflation impact

McMillon avoided the word inflation in his comments. Costco  (COST)  Chief Financial Officer Richard Galanti, who steps down on March 15, has been very transparent on the topic.

The CFO commented on inflation during his company's fiscal-first-quarter-earnings call.

"Most recently, in the last fourth-quarter discussion, we had estimated that year-over-year inflation was in the 1% to 2% range. Our estimate for the quarter just ended, that inflation was in the 0% to 1% range," he said.

Galanti made clear that inflation (and even deflation) varied by category.

"A bigger deflation in some big and bulky items like furniture sets due to lower freight costs year over year, as well as on things like domestics, bulky lower-priced items, again, where the freight cost is significant. Some deflationary items were as much as 20% to 30% and, again, mostly freight-related," he added.

Read More

Continue Reading

Government

Walmart has really good news for shoppers (and Joe Biden)

The giant retailer joins Costco in making a statement that has political overtones, even if that’s not the intent.

Published

14 hours ago

on

March 9, 2024

By

As we head toward a presidential election, the presumed candidates for both parties will look for issues that rally undecided voters. 

The economy will be a key issue, with Democrats pointing to job creation and lowering prices while Republicans will cite the layoffs at Big Tech companies, high housing prices, and of course, sticky inflation.

The covid pandemic created a perfect storm for inflation and higher prices. It became harder to get many items because people getting sick slowed down, or even stopped, production at some factories.

Related: Popular mall retailer shuts down abruptly after bankruptcy filing

It was also a period where demand increased while shipping, trucking and delivery systems were all strained or thrown out of whack. The combination led to product shortages and higher prices.

You might have gone to the grocery store and not been able to buy your favorite paper towel brand or find toilet paper at all. That happened partly because of the supply chain and partly due to increased demand, but at the end of the day, it led to higher prices, which some consumers blamed on President Joe Biden's administration.

Biden, of course, was blamed for the price increases, but as inflation has dropped and grocery prices have fallen, few companies have been up front about it. That's probably not a political choice in most cases. Instead, some companies have chosen to lower prices more slowly than they raised them.

However, two major retailers, Walmart (WMT) and Costco, have been very honest about inflation. Walmart Chief Executive Doug McMillon's most recent comments validate what Biden's administration has been saying about the state of the economy. And they contrast with the economic picture being painted by Republicans who support their presumptive nominee, Donald Trump.

Walmart has seen inflation drop in many key areas.

Image source: Joe Raedle/Getty Images

Walmart sees lower prices

McMillon does not talk about lower prices to make a political statement. He's communicating with customers and potential customers through the analysts who cover the company's quarterly-earnings calls.

During Walmart's fiscal-fourth-quarter-earnings call, McMillon was clear that prices are going down.

"I'm excited about the omnichannel net promoter score trends the team is driving. Across countries, we continue to see a customer that's resilient but looking for value. As always, we're working hard to deliver that for them, including through our rollbacks on food pricing in Walmart U.S. Those were up significantly in Q4 versus last year, following a big increase in Q3," he said.

He was specific about where the chain has seen prices go down.

"Our general merchandise prices are lower than a year ago and even two years ago in some categories, which means our customers are finding value in areas like apparel and hard lines," he said. "In food, prices are lower than a year ago in places like eggs, apples, and deli snacks, but higher in other places like asparagus and blackberries."

McMillon said that in other areas prices were still up but have been falling.

"Dry grocery and consumables categories like paper goods and cleaning supplies are up mid-single digits versus last year and high teens versus two years ago. Private-brand penetration is up in many of the countries where we operate, including the United States," he said.

Costco sees almost no inflation impact

McMillon avoided the word inflation in his comments. Costco  (COST)  Chief Financial Officer Richard Galanti, who steps down on March 15, has been very transparent on the topic.

The CFO commented on inflation during his company's fiscal-first-quarter-earnings call.

"Most recently, in the last fourth-quarter discussion, we had estimated that year-over-year inflation was in the 1% to 2% range. Our estimate for the quarter just ended, that inflation was in the 0% to 1% range," he said.

Galanti made clear that inflation (and even deflation) varied by category.

"A bigger deflation in some big and bulky items like furniture sets due to lower freight costs year over year, as well as on things like domestics, bulky lower-priced items, again, where the freight cost is significant. Some deflationary items were as much as 20% to 30% and, again, mostly freight-related," he added.

Read More

Continue Reading

Trending