20 Oct Inflation Update

Readers will recall commentaries over the past two years in which TLR expressed the view that the Federal Reserve will face political and economic realities that prevent it from adequately responding to incipient inflationary forces by either tapering its bond-buying or raising interest rates.

In his quarterly letter issued today, David Einhorn agreed:

“[I]f the Fed were to actually fight inflation, it would harm the financial markets and trigger a fresh recession that our fiscal and monetary policies aren’t capable of addressing. We don’t think our leaders are prepared to take responsibility for doing so. As a result, the Fed is left with a policy of obfuscating inflation, claiming it’s transitory and just hoping that it goes away on its own. Or, at worst, it can be dealt with over time by gradually reducing bond purchases and ultimately gradually increasing interest rates. Unfortunately, this seems increasingly unlikely.”

As TLR wrote, the Fed will continue “talking the talking,” but it is unlikely to truly “walk the walk.”