From Covid to Comeback – WSJ

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“Investors are growing more fearful of a Fed mistake,” says a headline at corporate cousin Marketwatch. “A survey now finds ‘central bank policy error’ is the third biggest risk to the market,” writes Steve Goldstein. But he also notes that “higher-than-expected inflation and bond yields” were identified as the biggest risk, which many may eventually count in the category of Fed policy errors. The survey comes from Deutsche Bank , which finds such concerns rising since April.

Fortunately investors aren’t the only ones growing concerned. While the president of the New York Fed still isn’t ready to turn off the emergency money spigot, other Fed regional bank presidents are beginning to recognize that the post-Covid economy has been rising for a while and doesn’t need gargantuan federal intervention.

The Journal’s Michael Derby reports:

Federal Reserve Bank of New York leader John Williams said he isn’t ready for the U.S. central bank to dial back the support it is giving the economy amid uncertainty about the recovery from the pandemic…

Mr. Williams’s comments were his first public remarks since last week’s rate-setting [Federal Open Market Committee] meeting, at which officials held their short-term interest-rate target at near zero, where it has been since March 2020, and pressed forward with monthly purchases of $80 billion in Treasurys and $40 billion mortgage bonds.

These purchases, executed with money created by the Fed, have roughly doubled the Fed’s balance sheet since the start of the crisis. Yet with the emergency over, the money printing continues. Mr. Derby notes:

Before Mr. Williams spoke, two other Fed officials at another virtual event said the day for paring back the central bank’s bond-buying stimulus is growing closer. Robert Kaplan of the Dallas Fed and James Bullard of the St. Louis Fed didn’t specify when the central bank should act in a joint virtual appearance Monday, but both said the time for the central bank to rethink its strong support for the economy is getting closer, if it hasn’t already arrived.

Mr. Kaplan, reiterating a view he has held for some time, said, “I’ve been more of a fan of doing some things, maybe, to take our foot gently off the accelerator sooner rather than later so that we can manage these risks” around the recovery process, in a bid to “avoid having to press the brakes down the road” with a more abrupt shift in monetary policy.

Many consumers are no doubt hoping the Fed will recognize 5% inflation as a good moment to lay off the accelerator.

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