How Much Economic Growth is Too Much?

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The Fed kept rates low yesterday and continued to forecast rates close to zero at least until 2023, despite improving its US economic outlook and increasing inflation worries in financial markets.

However, the decision came on a volatile day for investors as government bond yields rose ahead of the announcement. At the press conference that followed, Powell said: “Most of the committee shows no rate hike in this forecast period.” The time to talk about reducing asset purchases by the central bank is “not yet”.

That answer is unlikely to allay investors’ inflation fears, but whether or not these concerns are justified is difficult to answer. McCreadie said it was hard to imagine that investors would worry about too high inflation when huge swaths of the world economy are still bouncing off and some countries, like Canada, stand still to some degree.

He said, “However, if there has been one constant throughout the rally from the low in March last year, it is the fact that equity markets are well ahead of economic recovery. In this regard, it makes sense for investors to have already started pricing for higher inflation, although that is not a guarantee and in that case may still be months away from acquisition.

“All of this is, of course, initiated by the massive economic stimulus efforts by governments and central banks around the world over the past year. Perhaps fiscal and monetary policies have never been so accommodative at the same time, and the amount at stake continues to grow after the last $ 1.9 trillion package approved in the US earlier this month.

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