Topping Up the Punch Bowl ... Handing Out The Spliffs ...

In the US this week, the Federal Reserve held rates and vowed to maintain the momentum of the asset purchase plan. The Fed will continue to increase its holdings of Treasury Securities by $80 billion dollars per month. $40 billion remains the monthly budget for mortgage backed securities.

The "accommodating" stance of monetary policy will be maintained until "substantial further progress has been made towards the committee's maximum employment and price stability goals." 

Last week the house approved Biden's $1.9 trillion spending plan. The White House is working on a further $2 trillion plan to follow, for infrastructure and business investment. The Fed is adding to a further $1.5 trillion to the asset purchase plan to help out. Forecasts for the US economy have been revised up. Growth of 6.5% is now expected for the year, compared to the 4.2% forecast in the December projections.

The forecasts for unemployment have been revised down, the forecasts for inflation have been revised up. Inflation is expected to rise above the 2% target to 2.4% in the short term. The Fed will "look through" any short term breach. Base rates are expected to be on hold into 2023. US ten year bond yields increased to 1.71%. 

Over fifty years ago, the Chairman of the Federal Reserve, William McChesney said, the job of the central bank is to "take away the punch bowl just when the party gets going". For the moment, the Fed is topping up the punch bowl and handing out the spliffs.

Jerome Powell as Chairman of the Fed is creating the mother of all parties to ensure everyone is well inebriated before the mother of all hangovers will have to be addressed ... but not for some time yet ...

At the news conference on Wednesday, the Chairman was asked if it was time to start "talking about, talking about" slowing the central bank's buying of $80 billion in bonds each month. Powell let out a laugh before answering "Not Yet" ...