The Federal Reserve is to end quantitative tightening with their balance sheet to start rising from September according to an analysis from Bloomberg. They say:
“Net bond purchases by the Federal Reserve, European Central Bank and Bank of Japan will swing back above zero from September, according to an analysis of their balance sheets by Bloomberg Economics. That’s just eleven months since they collectively hit reverse having spent a decade pumping stimulus into their economies via quantitative easing…
Since the Fed began reversing QE in October 2017, it has shed about $370 billion in Treasuries from its balance sheet which had hit $4.5 trillion in 2015. Those holdings will begin to rise later this year as the Fed ends the unwind and engineers plans to move back to pre-crisis norms of holding only government debt by slowly replacing its $1.5 trillion in mortgage-debt holdings with Treasuries.”
While FT says FED chairman Jerome Powell “is poised to cut interest rates next week, because the US central bank says it wants to boost sluggish inflation.”
Meaning the area of cheap money and printing like there’s no tomorrow may well be back following considerable pressure from Donald Trump, the President of the United States.
Interestingly inflation has fallen last month while economic growth has been increasing to 3.2% from 1.3% in July 2016.
Why inflation is not picking pace amid growth is not clear with this data apparently not including food prices and energy.
Regarding the latter tensions in Iran have led to some increase in oil prices recently from $61 to $63, but it may well be that fracking – which has led America to become an exporter of oil – has acted as some sort of a boost to the economy by lowering oil prices and thus prices in general.
The price of oil was about $87 in October when inflation was at 2.5%. It then dropped to $50 in December-January, with inflation too dropping as low as 1.5%.
It then rose again to a brief $76 in April-May, with inflation likewise rising to then drop again as if it’s almost directly tracking oil prices.
This apparent close relationship between oil and inflation may well explain all those tensions, with lower inflation potentially allowing for more money printing by the FED.
That can make borrowing, running at about $1 trillion for the US government, and servicing the debt – about $400 billion a year just in interest payments – a lot cheaper.
The devaluation would further mean any funds in a savings account are effectively burning money. Savers thus will have to go and spend or invest in the stock market, in cryptos like bitcoin or eth, as well as in other assets with both bitcoin and Dow Jones up and up.
Plus, Boris Johnson has just become Prime Minister. He will likely copy Trump probably to the dot where the economy is concerned minus perhaps all that tariffs nonsense.
That is, once he finds some time to breath amid all that Brexit stuff, he will announce tax cuts, maybe huge tax cuts.
That will allow Brits to keep a bit more in their pocket, including the poorest ones who he wants to take out of tax altogether, including out of national insurance taxes.
So the poor will have more money for food, while the rich will have more money to invest, so potentially giving UK’s economy that 3% growth if we ignore any potential Brexit mess.
Meaning the roaring 20s may well be about to begin, and if they do, we all will have to dance because the hangover will hurt whether we have fun or not while the times are perhaps hopefully good.