Date: April 28, 2021

Fed Day is Here and I am Not Celebrating

It’s Fed day and these meetings should all take on some significance going forward as Powell et al should begin to hint at less accommodation. However, the Fed learned their lesson in 2013 with the Taper Tantrum and will make sure the runway is long and clear.

Although I have so been enjoying the fruits of their labor since last April and I assume clients and investors have as well, if I sat in Jay Powell’s seat, I would already have begun to slightly pull back. The markets absolutely do not need the level of support they are getting from the Fed. And let’s face it, the economy has been roaring since Q3 2020. This year should print the strongest GDP growth in decades.

Everyone seems happy. But at what future cost? Inflation has been a theme of mine since Q3 2020 and that genie is out of the bottle. The academics call it “transitory”. I call it troublesome. Lumber, corn, semiconductor chips. It’s across the board and certainly in housing. The Fed will let the economy run “hot”, meaning an extended period of inflation above their 2% target before they take action. That isĀ  because they have tried, unsuccessfully, for more than a decade to engineer inflation higher. Now, it’s here and they are stupidly taking a victory lap as if it is something to celebrate.

I haven’t even broached the labor shortage which is also inflationary. I spoke with a client this morning who is considering shuttering her restaurant because she cannot find staff. My landscaper told me today that he his usual staff of 24 is down to 19 because he can’t get labor. Too many people are getting paid too much not to work on the books. Stay home. Collect benefits and work under the table. That is not how it is supposed to go, especially in America. But, that’s the landscape the Fed and the government created. It’s not a partisan issue. Everyone is to blame.

And before people email or @ me on Twitter by saying that Powell’s term is almost up. Lael Brainard is probably next in line and she will likely pick up where Jay left off. Brainard’s speeches put her squarely in Janet Yellen’s camp.

Back to the Fed. The model for the day is a quiet plus or minus 0.50% until 2pm and then a move into 4pm which is usually higher. However, the Powell Fed has somewhat muted the historical trends.


Paul Schatz, President, Heritage Capital