The U.S. Federal Reserve Bank’s Federal Open Market Committee (FOMC), at the conclusion of its March 17 meeting on St. Patrick’s Day, released a statement seemingly both forecasting and welcoming a takeoff of inflation in the U.S. economy; but very quietly took an opposing action.
Absurdly, the Fed’s economic assessment was that inflation could be expected to accelerate but only temporarily, and would be declining again by 2022. Merely consider energy prices. The intention of the greatest powers in the financial system is to force “the shift of trillions” – the very trillions the Fed is helping print – into energy technologies which rapidly will push end-products such as electricity, gasoline, etc. much higher, and keep doing so. The Fed, with its participation in the Network for Greening the Financial System, knows the facts of the “green finance bubble” very well.
The more fundamental trigger is that almost all the trans-Atlantic economies have shrunk to varying degrees in the past 18 months, while the trillions pile of new currency and reserves – debt – they have issued has been immense. What does the Fed with its prediction of 6.5% GDP growth in 2021 say about the Chicago Federal Reserve Bank’s Economic National Activity Index which unexpectedly was -1.09 in February, where a negative figure indicates below-normal activity. The index was pulled down by industry and the housing market.
Producer price inflation is already becoming severe in varied industries and is associated with a growing number of shortages of primary products such as semiconductors, certain grades of steel, aluminum, rare earths, many grades of lumber, etc. Sharp drops in productive demand for these producer goods during the middle of 2020 caused equally sharp drops in production. Since the Fall of 2020 a tremendous combined flow of Federal Reserve money printing and Treasury spending, reaching the astonishing eruption of $271 billion in the third week of March, has been creating escalating demand for those same producer goods, and for some services.
But despite all this forecast growth and inflation, and despite the Treasury’s spending of another $1.9 trillion under the American Rescue Act just enacted, the FOMC decided that the Federal Funds Rate will be kept effectively at zero through the end of 2023 and the Fed will keep building up major banks’ reserves by securities purchases at the rate of $120 billion/month indefinitely.
At the same time the Fed showed its schizophrenic view of what to do about this “temporary inflation” – celebrate and push it, or stop it, or both. Without any notice in the FOMC statement, the New York Federal Reserve Bank announced a change in its regulation on repurchase agreements. This is the so-called “repo market", the interbank lending market whose breakdown in September 2019 first signaled the coming financial crisis which the Fed met by printing – so far — $4 trillion in excess bank reserves starting Oct. 4, 2019. Leaving technical aspects aside, the New York Fed’s change was an apparent step to withdraw cash liquidity from the banking system by getting banks to buy Treasuries from the Fed. If that sounds like the opposite of the Fed’s continuing QE4 at $120 billion/month indefinitely, it is. U.S. long-term interest rates jumped up March 18 in response.
