For all the excitement about the incoming administration and a return to the 2019 economy, market stability rests on the precarious assumption that the government will eventually put its fiscal house in order.
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TheFederalReserve’sprematurevictorylapoverinflationrevealsaworrisomemisunderstandingofthepredicamentwestillfindourselvesin.Unprecedentedgovernmentspendinganddebt,combinedwithmountingfearsthatthedebtcan’t(orwon’t)berepaid,playedamisunderstoodroleininflation’sriseseveralyearsago.Assuch,fiscalpolicymustbepartofthesolution.
Otherwise,expecttherecentaccelerationofinflationtostickaroundorgetworse,bringingtroubleforthenewadministration.
ThepressureontheFedtodeclaretheraceoverandcontinueloweringinterestratesisreal.Itwouldbeamistaketocaveanyfurther.Somemeasuresshowinflationholdingsteady.OthersshowittrendingbackupsincelastJuly.Eitherway,it’sabovetheFed’s2percenttarget,andnowthe10-yearrateispointingup.
Tounderstandwhat’sgoingon,rememberhowwegothere.
WhenCOVID-19andtheoverrea
