by Alasdair MacLeod
Gold Money
The sharp decline in US Treasury bond yields anticipates a pivot in Fed policy, which appeared to be justified this week by Chairman Powell’s dovish tone. But in truth, the Fed is not in control of events.
Given that it was US monetary policy which led the way up in interest rates, the dollar was strong against other currencies, creating opportunities for interest rate arbitrage. There is no knowing its scale, but we can expect it to be unwound post-pivot and should not be surprised at continuing dollar weakness. In short, a floor is being put under US price inflation through the exchange rate.
The far greater problem is that the monetary conditions of the 2020s are turning into a repetition of 1970s, but with added vengeance. This article explains the dynamics leading to higher interest rates in the coming years, higher bond yields and the threat of hyperinflation — all evident in the years following the Bretton Woods Agreement suspension.