When the central bank buys government bonds, say in the context of quantitative easing, it substitutes interest bearing government bonds for monetary liabilities (the money base typically taking the form of bank reserves). In the old days, these liabilities of the central bank were not remunerated. For around the last ten years, however, central banks […]

“People do what they know works, including the Fed”   Now, the question for us is whether the Fed is ready to let the market go now, or will come back in and pump the usual suspects. At this moment, it feels like they are doing some Nasdaq stock pumping, so they are not ready […]

November 29, 2021 In our view, the notable discussion in the FOMC minutes is not the comment that some policymakers supported a faster initial taper than originally announced, but the definitiveness of the shift in the balance of inflation risks, which of course has implications for the policy outlook, including the pace of the taper. Combined with […]

November 29, 2021 It is hard to keep giving Joe Biden the benefit of the doubt. The emergency release of oil stocks from the US strategic petroleum reserve last week violates every rule of statecraft and market management. To borrow from Napoleon, if you say you are going to take Vienna, take Vienna. Prior to […]

November 24, 2021 The transitory inflation debate in the United States is over. The upsurge in US inflation has turned into something far worse than the Federal Reserve expected. Perpetually optimistic financial markets are taking this largely in stride. The Fed is widely presumed to have both the wisdom and the firepower to keep underlying […]