Liquidity Trapped! The Fed’s Policy Nightmare

by Lance Roberts
Real Investment Advice

Yesterday, we got the release of the minutes from the FOMC meeting in July. Not surprisingly, we see a Fed just as confused as ever as to what monetary policy actions should be taken. To wit:

[…] As I wrote previously, I think the Fed is making a major policy mistake.

First, with the markets making new all-time highs, there is a ‘price’ cushion available for the markets to absorb a rate hike without breaking important downside support.

Secondly, with Central Banks globally flooding the markets with liquidity, a further ‘shock absorber’ is currently engaged in softening the impact of a rate hike.

Lastly, the economy is likely going to show a bit of ‘strength’ in upcoming reports, with slightly stronger inflationary pressures. This pickup in economic strength will be another inventory restocking cycle following several months of weakness. As has been in the past, it will be transient and that strength will evaporate as quickly as it came.

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