You can take it any way you want to (but that's not necessarily advisable)....


ref :- "Summers says low Fed interest rates fuel complacency in financial markets"


ref :- "BoE on alert for prolonged inflation rise"


ALL FROM THE FINANCIAL TIMES , 19/05/21


Having raced through some of the mainstream financial media all lot quicker than we would have liked this morning we will just point the way to two pieces in the FT, which as it happens should be looked at together.


Larry Summers, former Treasury Secretary in the Clinton administration and advisor to succeeding party leaders of the Democratic persuasion has never been shy of offering his opinion whatever his position at the time (and he's held a few big ones). You may have noticed that at present he's ringing the alarm bells on an almost daily basis on the dangers of prolonged and over-accommodative monetary policy by the Fed. That's fair enough .... it is entirely legitimate to suggest that investors, who have gorged for so long on ultra-low rates, will get a terrible shock if that policy provokes such a lasting spike in prices that the Fed is forced to tighten policy in a hurry. Mr. Summers' suggestion is that this would bring on market turmoil so devastating that it would cause lasting damage to the economy.


Well, he could be right .... anyone who is not even a little bit worried about the inflation spectre is not paying attention. But our take-out (excuse the horrible vernacular) from these pieces is not specifically about inflation itself (hooray!), but more about matters of presentation. Courtesy of Mr. Summers and other like-minded commentators (no blame attached, by the way), the Fed is portrayed as being complicit in the potential storm and just as complacent as investors .... more so in fact given their responsibilities. In particular, their willingness to tolerate an overshoot in inflation levels so long as it's temporary (and presumably not too vicious) risks a situation where they will not be able to get the genie back in the bottle without taking vicious action themselves at some point, which would inevitably lead to all the unfortunate results that Mr. Summers and others are warning us about.


Contrast that with the second piece: "BoE on alert for prolonged inflation rise" . The headline (and superficial reading of the article) suggest that the Bank of England is far more aware of potential dangers and stands ready to deal with them in a way that so far the Fed is not. BoE Governor Andrew Bailey has told parliamentary committees and others that excessive overshoots in inflation would not be tolerated and it seems as though the BoE might be taking its role as the guard-dog of stability more seriously than others.


Actually, and it's only our opinion (for whatever that's worth), we reckon that the differences in approach between the Fed and the BoE (and other major central banks, for that matter) are almost negligible. What is different is the presentation of respective policies. It may well be that the Fed, through fear of upsetting markets, is warier of making cautionary statements than other central banks in nations whose markets will ultimately be led by the US anyway. Of course, theoretically, the Fed's remit has nothing to do with markets, though few can still believe in the modern era that it doesn't colour their thinking to a greater or lesser extent. To remind ourselves, the Fed's official remit is twofold: stable inflation (which we know all too much about), and sustainably full employment .... and again for better or worse, post-pandemic it is the latter driving policy for now.


NOTE: Investors will hope to get a better idea of the true Fed thinking when the minutes of the last policy meeting are released later today


Anyway, the point of all this is the importance of presentation .... both by policymakers and by those that comment upon them. Investors have to be aware that there's usually more than one interpretation of statements and events and be vigilant in taking a more rounded view. Most importantly, investors should never blindly accept a particular stated view just because it happens to coincide with their position. Great danger lies down that route. Some are suggesting that it's time to re-assess .... but then again, some aren't and they point out that doubters have been saying similar things throughout the market's spectacular rise.


Whatever decision one comes to, one thing seems clear: re-assessment -- repeated, well-rounded and impartial re-assessment -- must be the only way to go. One would like to think that process is de rigueur for any investor, but what with FOMO and the like sometimes one wonders....



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