Even central banks want a reset
Fed monetary policy report
For more than a decade that belief has been undermined by inflation that has remained weak despite trillions of dollars pumped into the world’s biggest economies through quantitative easing programs and ultra-low interest rates.
That prompted the top central banks to review how they do business, and on Thursday the European Central Bank joined the Federal Reserve and the Bank of Japan in pursuing an ambitious reset in hopes of reasserting control.
Recent readings on these measures indicate that inflation is expected to return to levels consistent with the Committee’s 2 percent longer-run inflation objective after a period of temporarily higher inflation. That said, some measures suggest that the upside risks to the inflation outlook in the near term have increased.
Federal Reserve Monetary Policy Report, July 9th
The Fed provided new details on how it expects the labor market to reach its goal of maximum employment. Unemployment remains elevated, and labor force participation has been flat in recent months as Americans remain on the sidelines.
While the Fed says it’s possible the COVID-19 recession and the resulting worker shortage will have “long-term effects on the structure of the labor market,” we know the real causes of a subdued labor force participation rate.
Imagine how many older folk would go back to work if their retirement portfolios and home equity wealth shrank to pre-pandemic levels. Imagine how aggregate demand would dry up if asset prices fell. Imagine how few home improvement projects would be continued if house prices dropped to pre-pandemic levels.
“The pandemic seems to have accelerated the adoption of new technologies by firms and the pace of retirements by workers. The post-pandemic labor market and the characteristics of maximum employment may well be different from those of early 2020,” the central bank added.
Again, willful ignorance on how asset inflation has permanently distorted the labor markets and aggregate demand.
It’s difficult to call a secular top in the asset markets when the central banks will maintain low interest rates on the longer-dated maturities, and are pursuing their own ambitious reset.
For those looking to peer into the future of the Great Reset agenda, look to see how the central banks are looking for their own reset. Inflation is here to stay and will be indexed. Of course, scarcity will be blamed on a number of items, including climate change and social justice, but it will ultimately be caused by monetary policy.