July 19, 2021

The leader does not care about the problems of investors

 This week, Federal Reserve Chairman Jerome Powell delivered two speeches in the US Congress. Many people were waiting for some important information from the head of the Fede, but no one was sure that this very information would be available at all. The fact is that the main and key issue at the moment is the Fed's reaction to rising inflation. Recall that a couple of months ago, hardly anyone could have predicted that inflation would rise to 13-year highs. However, the reality is that now the consumer price index is 5.4% y/y. Given such a high level, most of any securities are currently unprofitable, since dividends and coupon payments on them are much lower than the current level of inflation. Of course, we should not make premature conclusions, and now it is too early to say that inflation is high, since this is just data for the last three months. Powell and other heads of central banks unanimously declare that the jump in inflation is a temporary phenomenon, but this does not make it easier for investors, so first of all they expect the Fed to complete the stimulus program, which accelerates inflation in the United States. However, the Fed has its own goals, much more ambitious than those of investors. The Fed needs to continue stimulating the economy and the labor market. According to Powell's latest statements, compared to the pre-pandemic value, the labor market is now 7.5 million fewer jobs. We have already calculated earlier that in order to reach pre-pandemic levels, the Fed may need to stimulate the economy for another 14-15 months. Even if this period is divided in two, it will turn out to be 7 months. Thus, the Quantitative Easing program will function exactly for at least another 7 months, that is, until the end of 2021-the beginning of 2022. Therefore, inflation in the United States may continue to accelerate at this time. Moreover, inflation is growing both in the European Union and in the UK. This means that investors were waiting for Powell to say that the QE program would be curtailed in the near future, or at least that the Fed was seriously considering its end. However, Powell said in Congress that the US economy has not fully recovered, the labor market is still very far from the target levels, and monetary stimulus should be maintained. Thus, the situation with rising prices may continue to remain unfavorable in the United States in the coming months. But the stock market is responding favorably to monetary stimulus, since most of the Fed's money is deposited there. And now money is also flowing into the stock market from the cryptocurrency market...