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.
by Veronique de Rugy
Reason.com
The Federal Reserve’s premature victory lap over inflation reveals a worrisome misunderstanding of the predicament we still find ourselves in. Unprecedented government spending and debt, combined with mounting fears that the debt can’t (or won’t) be repaid, played a misunderstood role in inflation’s rise several years ago. As such, fiscal policy must be part of the solution.
Otherwise, expect the recent acceleration of inflation to stick around or get worse, bringing trouble for the new administration.
The pressure on the Fed to declare the race over and continue lowering interest rates is real. It would be a mistake to cave any further. Some measures show inflation holding steady. Others show it trending back up since last July. Either way, it’s above the Fed’s 2 percent target, and now the 10-year rate is pointing up.
To understand what’s going on, remember how we got here.