The FED makes serious decisions accelerating inflation
Recent statements by Fed officials and analyzes by market veterans and economists point to a move towards an "average inflation" target, where inflation above the central bank's usual target of 2% would be tolerated. US economy will fight disinflationary pressure, not inflation, Fed's Powell says
Markets expect the Fed to take an even more confrontational approach than during the Great Recession. The Fed and other global central banks have been trying to raise inflation for years, arguing that a low rate of price appreciation is healthy for a growing economy. They also worry that low inflation is a self-feeding problem, keeping interest rates low and giving policymakers little room to loosen policy during downturns.
In recent days, regional Fed presidents Robert Kaplan of Dallas and Charles Evans of Chicago have expressed mixed support for improved guidelines. In particular, Evans said he would like to keep rates unchanged until inflation rises by around 2.5%, which has not been the case for most of the last decade.
"We believe the Fed would publicly take inflation in the range of 2% to 4% as long overdue compensation for inflation below 2% for so long in the past," said Ed Yardeni, head of Yardeni Research. Yardeni said the approach would be "insanely bullish" on alternative asset classes, particularly growth stocks and precious metals like gold and silver. Guha said the Fed's moves would lead to "a sustained fall in real yields, a fall in the dollar, lower volatility, lower credit spreads and an increase in stock prices."
As you can see from the market, investors were placing heavy bets that would be consistent with inflation: record highs in gold prices, sharp declines in the US dollar, and soaring prices of TIPS, or Treasury inflation-protected securities. TIPS funds saw net investor cash inflows for six consecutive weeks, including $1.9 billion and $1.5 billion in the weeks of June 24 and July 1, respectively, and $271 million in the week ending July 29, according to Refinitiv.