The Fed have recognised inflationary pressures in the economy and moved forward ‘tapering’ QE, from 2024 to 2023. The recognition of record CPI and PPI in the US economy, was necessary, but the co-ordinated action by Treasury and the Fed suggest collusion on semantics. Treasury Secretary Yellen testified that inflationary pressures were ‘transitory’, in the language of the Fed, and this solidarity questions the independence of the Fed. Inflation is like a cancer in the economy and must be attacked early and with gusto. This attempt will end badly. The Dow crashed 300 points on the news and the 10 year bond yield crept higher. The US Dollar rallied, with the EUR falling back to 1.2030, while the GBP tests 1.4000 on the downside. UK inflation is surging, up 2.1%, while PPI has broken 10.7%! Inflation is here and cannot be ignored.
Markets were consumed by the Fed, but inflation is now a global problem, despite weak growth in the worlds economies. UK CPI/PPI has at least been recognised by the Bank of England and they have already announced have plans to combat it. They will bring forward the battle plan, as will the Federal Reserve and other Central banks. The reserve surged hitting commodity currencies hard, with the AUD falling towards 0.7600, while the NZD crashed to 0.7050. Markets will digest the Fed’s commentary and local markets will look to growth data in New Zealand. NZ GDP numbers released today, are forecast to reveal insipid growth, but any dip into negative territory would confirm a ‘technical recession’.