Taps Coogan – August 30th, 2021

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Grant’s Interest Rate Observer founder and editor, Jim Grant, recently spoke with CNBC to warn that the Federal Reserve is “betting everything” on the notion that it’s extremely accommodative policy isn’t going to lead to enduring inflation.

Some excerpts from Jim Grant:

“These policies do have consequences and can have profound consequences. Everyone, the bond market and the Fed alike, are betting everything on this idea that these unique policies will not be inflationary, and to the extent that they are inflationary, that the inflation will be transitory. All this is seemingly absorbed without dissent, certainly there is no dissent evident in the bond market. But if that’s not true, what if this inflation, no longer in theory but in fact, what if this is persistent? The entire financial world dangles by the thread of these ultra low interest rates that the valuations depend on… I say that the Fed is playing with fire.”

As we all debate whether or not our current bout of inflation will prove transitory, the enormous asymmetry of outcomes is what should now be guiding policy. If the ‘transitory inflation’ camp is wrong, it will have massive consequences for a market hurriedly ploughing trillions upon trillions of dollars into negative yielding assets and historically over-valued instruments all on the premise that interest rates will remain low forever.

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