Federal Reserve backtracks on rates, as expected, market rallies. Oil now parabolic. War trade is on and so is inflation. Stagflation will rule the day.
Federal Reserve Chairman Jerome Powell, as predicated, as lessen the interest rate expectations in March from 50 basis points to 0.25% which will be so token as a rate increase, it probably will have little or no effect on inflation that is now out of control globally. Sans, stocks rallying. These are Central Bankers that are so used to loose monetary policy and by an arrogant disposition, have juggled economic expansion under cheap debt and monetarization. That any shift in policy, ala shock to their fixed-in-stone mixed economic mandates, causes them to intellectually meltdown. Despite one of the most horrible events since the end of World War Two and the beginning of the 1st Cold War; Russia's invasion of Ukraine . A new and dangerous Cold War has emerged, with the possibly that low yield nukes may indeed be utilized in Russia's aggression to reclaim Eastern Europe and possible expand into the Middle East.
War is always inflationary and with the oil price closing in on $110 a barrel, it is not a time to sit on a low rate interest cycle, with European Central Bank members now blaming the war in Ukraine as a stagflation trigger, in through the lack of purchasing power of the European and U.S. Dollars combined with supply shortfalls and climate change related affects, once again, this shows you the gall of these Central Bankers in not taking some responsibility in tightening monetary policy, so that inflation does not lead further to unrest and conflict. This is because of the obsession with the Phillips Curve measure, an outdated and antiquated modeling chart that inflation can, inadvertently, keep unemployment low. Of course, disruptive technologies, zombie companies, climate change, pandemics, war and a expanding age gap, we are getting older, less babies being born. So, things have changed dramatically in the last three decades.
But, it will be oil that will be the deciding factor for Federal Reserve and other Central Banks to either put in place 1 to 2% rate increases as an emergency to offset the oil price, to which Putin could drive the oil price up over $150 as an economic war play against the West.
Chart 1: 10 YR collapse on safe haven flows and the Fed back tracking on rates, with the Oil price now parabolic. Chart 2: Brent Oil, chart says it all, when 2 thirds of the global trade reliant on its pricing. 1970's stagflation will look like a picnic.
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"We and you ought not pull on the ends of a rope in which you have tied the knots of war. Because the more the two of us pull the tighter the knot will be tied. And then it will be necessary to cut that knot, and what that would mean is not for me to explain to you. I have participated in two wars and know that war ends when it has rolled through cities and villages, everywhere sowing death and destruction. For such is the logic of war. If people do not display wisdom they will clash like blind moles and then mutual annihilation will commence."
Robert McNamara (D2009)
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