{"id":42875,"date":"2023-07-06T06:47:57","date_gmt":"2023-07-06T06:47:57","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=42875"},"modified":"2023-07-06T23:48:32","modified_gmt":"2023-07-06T23:48:32","slug":"fed-faces-three-uncomfortable-truths","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2023\/07\/06\/fed-faces-three-uncomfortable-truths\/","title":{"rendered":"Fed Faces Three Uncomfortable Truths"},"content":{"rendered":"<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" style=\"width: 150px; height: auto !important;\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/gita-gopinath-150x200.jpg?resize=150%2C200&#038;ssl=1\" alt=\"IMF deputy head Gita Gopinath\" width=\"150\" height=\"200\" \/><\/p>\n<p>IMF deputy head, Gita Gopinath, <a href=\"https:\/\/www.imf.org\/en\/News\/Articles\/2023\/06\/26\/fdmd-speech-sintra-3-uncomfortable-truths\">recently highlighted<\/a> three uncomfortable truths for monetary policy:<\/p>\n<style>div.p{display:block;padding:0;margin:0.5em 0;}<\/style>\n<ol>\n<li><strong>Inflation is taking too long to get back to target<\/strong>.\n<div class=\"p\">Financial conditions may not be tight enough and sustained high inflation could make the task of bringing inflation down more difficult.<\/div>\n<\/li>\n<li><strong>Central banks&#8217; price and financial stability objectives conflict<\/strong>.\n<div class=\"p\">Central banks can provide liquidity to struggling banks but are not equipped to deal with problems of insolvency which may be caused by a sharp rise in interest rates.<\/div>\n<\/li>\n<li><strong>We face more upside inflation risks<\/strong>.\n<div class=\"p\">The past two decades of low inflation are over and the global economy faces inflationary pressures from:<\/div>\n<ul>\n<li>On-shoring of critical supply chains;<\/li>\n<li>Rising geopolitical tensions (with Russia, China and Iran);<\/li>\n<li>Transition away from coal, oil and gas to low-CO2 energy sources (renewables &amp; nuclear); and<\/li>\n<li>Spiraling demand for critical materials needed to meet the above challenges.<\/li>\n<\/ul>\n<\/li>\n<\/ol>\n<p>Balancing monetary policy is going to be difficult, especially where prices are under pressure from a number of challenges. We expect central banks to tolerate higher inflation for longer in order to preserve financial stability.<\/p>\n<h2 id=\"fed\">Fed only expects to hit 2.0% inflation target in 2025<\/h2>\n<p>Fed Chairman Jerome Powell recently highlighted the above conflict between policies to tame inflation and maintain financial stability. During a recent ECB panel discussion, Powell indicated that he only expects the Fed to hit their 2.0% inflation target for core inflation in 2025.<\/p>\n<div style=\"display: block; width: 100%; height: auto; max-height: 290px; margin: 0 auto 1.5em; padding: 0;\"><iframe loading=\"lazy\" style=\"display: block; margin: 0 auto;\" src=\"https:\/\/video-api.wsj.com\/api-video\/player\/v3\/iframe.html?guid=34688C17-1107-4F8F-A4CD-D3AFC1E3A10C\" width=\"512\" height=\"288\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/div>\n<p>The Fed Chair says job creation and real wage gains are driving real incomes and increased spending. That raises demand which in turn drives the labor market. (<a href=\"https:\/\/www.wsj.com\/articles\/powell-other-central-bankers-face-uncertain-inflation-outlook-30bd34e5\">WSJ<\/a>)<\/p>\n<p>Unemployment increased slightly to 3.7% in May but remains near record lows. The tight labor market continues to fuel strong growth in hourly earnings.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-07-02-u3-wages.png?resize=525%2C404&#038;ssl=1\" alt=\"Unemployment, Average Hourly Earnings Growth\" width=\"525\" height=\"404\" \/><\/p>\n<p>Tighter monetary policy would drive up unemployment &#8212; as demand slackens and layoffs increase &#8212; and dampen inflationary pressures. But at the risk of financial instability.<\/p>\n<h2>Conclusion<\/h2>\n<p>Further monetary tightening is necessary in order to increase the slack in labor markets, weaken demand, and curb inflation in the short-term. But the required policy steps &#8212; rate hikes and QT &#8212; are likely to crash the economy.<\/p>\n<p>Rather than create financial stability through vigorous monetary tightening, the Fed is likely to tolerate higher levels of inflation &#8212; above their 2.0% target &#8212; for a longer period.<\/p>\n<p>A less-hawkish stance from the Fed would be bullish for Gold.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>IMF deputy head, Gita Gopinath, recently highlighted three uncomfortable truths for monetary policy: Inflation is taking too long to get back to target. Financial conditions may not be tight enough and sustained high inflation could make the task of bringing inflation down more difficult. Central banks&#8217; price and financial stability objectives conflict. Central banks can &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2023\/07\/06\/fed-faces-three-uncomfortable-truths\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Fed Faces Three Uncomfortable Truths&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,13,34],"tags":[315,819,4484,5215,6005,1790,3977,4794,6004,5296],"class_list":["post-42875","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-inflation-economy","category-us-canada-countries-regions","tag-average-hourly-earnings-growth","tag-core-inflation","tag-fed-monetary-policy","tag-gita-gopinath","tag-global-supply-chains","tag-imf","tag-jerome-powell","tag-on-shoring","tag-price-stability","tag-rate-hikes"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Fed Faces Three Uncomfortable Truths - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fed Faces Three Uncomfortable Truths - the patient investor\" \/>\n<meta property=\"og:description\" content=\"IMF deputy head, Gita Gopinath, recently highlighted three uncomfortable truths for monetary policy: Inflation is taking too long to get back to target. Financial conditions may not be tight enough and sustained high inflation could make the task of bringing inflation down more difficult. Central banks&#8217; price and financial stability objectives conflict. 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Her address focused on what she calls the three uncomfortable truths for monetary policy: The first uncomfortable truth is that inflation is taking too long to get back to target. This means\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Gita Gopinath","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/gita-gopinath.jpg?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":42835,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/07\/04\/fed-only-expects-to-hit-2-0-inflation-target-in-2025\/","url_meta":{"origin":42875,"position":1},"title":"Fed only expects to hit inflation target in 2025","author":"Colin Twiggs","date":"July 4, 2023","format":false,"excerpt":"The Fed is walking back its hawkish stance on inflation. During an ECB panel discussion Jerome Powell stated that he only expects the Fed to hit their 2.0% inflation target for core inflation in 2025. The Fed Chair says job creation and real wage gains are driving real incomes and\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Unemployment, Average Hourly Earnings Growth","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-07-02-u3-wages.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-07-02-u3-wages.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-07-02-u3-wages.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":28326,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/10\/13\/imf-warns-of-inflation-risks\/","url_meta":{"origin":42875,"position":2},"title":"IMF warns of inflation risks","author":"Colin Twiggs","date":"October 13, 2021","format":false,"excerpt":"Central banks such as the Federal Reserve should be prepared to tighten policy in case inflation gets out of control, the International Monetary Fund warned in a report Tuesday. While the IMF said it largely concurs with assessments from the Fed and many economists that the current global spate of\u2026","rel":"","context":"In &quot;Inflation&quot;","block_context":{"text":"Inflation","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/inflation-economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":62068,"url":"https:\/\/thepatientinvestor.com\/index.php\/2025\/06\/26\/powell-trump-and-the-dollar\/","url_meta":{"origin":42875,"position":3},"title":"Powell, Trump, and the Dollar","author":"Colin Twiggs","date":"June 26, 2025","format":false,"excerpt":"Fed Chair Jerome Powell delivered his semiannual monetary policy report to the Congressional Committee on Financial Services. In a nutshell: The economy remains solid The labor market remains solid Inflation remains \"somewhat elevated\" compared to the Fed's 2% target Increases in tariffs this year are likely to push up prices\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Fed Chair Jerome Powell","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/powell2.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":21423,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/09\/07\/gold-inflation-the-trillion-question\/","url_meta":{"origin":42875,"position":4},"title":"Gold &#038; Inflation: The trillion $ question","author":"Colin Twiggs","date":"September 7, 2020","format":false,"excerpt":"A plot of real corporate bond yields highlights Fed monetary policy over the last century. Real (Aaa) bond yields above 5% indicate monetary tightening; below 2% indicate easing; while negative rates signal abandonment of monetary stability, high inflation and debasement of the Dollar. Significant eras of monetary policy are marked\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":28846,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/11\/10\/inflation-is-coming\/","url_meta":{"origin":42875,"position":5},"title":"Inflation is coming","author":"Colin Twiggs","date":"November 10, 2021","format":false,"excerpt":"Inflation tops investor concerns according to Fed report Concerns over higher inflation and tighter monetary policy have become the top concern for market participants, pushing aside the COVID-19 pandemic, the Federal Reserve said on Monday in its latest report on financial stability. ....Roughly 70% of market participants surveyed by the\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Producer Price Index (PPI) & Consumer Price Index (CPI)","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-11-10-ppi-cpi.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-11-10-ppi-cpi.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-11-10-ppi-cpi.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-11-10-ppi-cpi.png?resize=700%2C400&ssl=1 2x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/42875","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=42875"}],"version-history":[{"count":14,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/42875\/revisions"}],"predecessor-version":[{"id":42903,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/42875\/revisions\/42903"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=42875"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=42875"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=42875"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}