Notes From Underground

Sorry to state the obvious but 2020 has been a tumultuous year. Between covid-19 and U.S. politics — and the politics of covid — interest rates have returned to the zero lower bound after the second-quarter disaster. The FEDERAL RESERVE has declared that it’s on hold until the wages and jobs lost to the most vulnerable have been recovered.

As we enter 2021, the question for traders and investors is: What opportunities will the FED provide by ensuring that the recovery of jobs takes precedent over any inflation concerns?

A past example of this was 1946-51 when the U.S. Treasury “forced” the central bank to keep rates on hold even as inflation rose in response to the massive demand post-World War II. The FED was under extreme pressure from the White House to keep rates low even as inflation reached 14% in 1947 and 8% in 1948 in the middle of a recession. Had rates been allowed to rise to a semblance of market rates, the interest on the debt would have had choked off spending on many needed U.S. discretionary budget items.

So, will the FED keep downward pressure on rates along the entire yield curve through the use of yield curve control? If so, the implications for many asset classes will be affected leading to a myriad of investment opportunities. Listen and enjoy the latest PODCAST. We will examine the investing environment under a YELLEN-led Treasury. But if this thesis is correct there is no way for the FOMC to avoid YCC.

Click here to listen to the podcast.

Tags: Federal Reserve, inflation, interest rates, Janet Yellen, Jerome Powell

This entry was posted on December 1, 2020 at 7:12 pm and is filed under Fed. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.