From yesterday's FOMC release:
"The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation."
This is the root of the entire game. People who really believe that rising prices cause inflation must continually be off sides in this game because they do not even get out of the gate on the right foot. Dis info like this is why I am always harping upon the MSM and the financial services industry in general, which seem to rest securely in the status quo and the ignorance of the masses.
Recovery – along with attendant rising asset prices - was promoted through pure inflation, which is the same tool that has been used ever more intensely since the age of 'inflate-or-die', Inflation onDemand or whatever you want to call it, kicked in so acutely at around the turn of the century.
The most recent inflation has already happened and the effects are now being managed by the FOMC as perhaps a declining majority believe the robo-drivel, as noted above. The troubadours on Wall Street are self-interested in the status quo, and have no problem seeing confidence in the Fed remain in force through as many bonus seasons as possible.
Now, it is probably time for a cooling of the [shameless metaphor alert] inflationary reactor as it has threatened to melt down. This must be managed, and China is once again in the game helping out.
The reason this blog has been so concerned about long term US Treasury bond yields for months now is because a breakout of the long term trend would have meant the financial equivalent of a nuclear meltdown, which would have severely compromised the Fed's power. Do you really think they are going to willingly let that happen?
So it is expectations management time, and time for really lame lines like the one quoted above from the FOMC. But rest assured, the inflation is ongoing, whether bond yields indicate it or not. NFTRH used a different metaphor in this regard; a game of Whack-A-Mole. Right now, even as the US 'Bond King' ducks back down the hole, China pops its head up and yields are maintained. This is not a sign of inflation containment however. It is a sign of obfuscate and delay.
As NFTRH127 put it in the 'Wrap Up' last weekend:
What does all of the above mean? I believe that whatever the flash points (fear of no
QE3, toppling dictators, oil, earthquakes, etc.), the markets need a break. I have
questioned Bernanke’s ‘damned the torpedoes’ stance in the face of unquestioned
economic growth and now even he is talking of an end to QE one day.
Does he think we are all as dumb as the lowest common denominator? Is that how he
sees the huddled masses from on high in academia? Now policy makers issue some
talking points about the end to radical stimulus as if for no reason other than ‘growth is
on track, we have done our job and will now ride off into the sunset and… you’re
No, policy makers are exposed if speculation goes too far and the long bond yield gets
out of hand. China’s recent escalation of Treasury bond purchases likely comes within
the context of orchestration on a grand scale. Okay, I’ll play; we could get a whiff of
something nasty in here soon. This would puff up the deflationists and once again
embolden them to come out of the woodwork in admonishment of we stupid bulls and
inflationists. Therein will lay opportunity.