Loading ...More remarkable even than having grown comfortable with very strong growth and labor markets, the Fed is willing to disregard extremely loose financial conditions and highly speculative financial markets. It’s the same old asymmetric policy approach. Tight conditions would attract all kinds of attention, while quite loose conditions don’t receive a mention. It’s worth remembering that we’re only 19 months past 9.1% y-o-y CPI inflation. Meanwhile, the Nasdaq100 returned 55% last year, the strongest performance since 1999, with the Semiconductor (SOX) Index returning 67%.
History teaches us that asset inflation and Bubbles pose greater risk to system stability than consumer price inflation. The so-called “great financial crisis” was the result of a mortgage finance Bubble that inflated spectacularly in a backdrop of low CPI and loose financial conditions. Catastrophic “Roaring Twenties” excess evolved during a period of well-contained consumer prices.
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