To print or not to print, that is the question

By J.P. Szafranski
BridgeTower Media Newswires

What’s in a meme? A quick Google search tells us that a meme can be “a humorous image, video, piece of text, etc., that is copied and spread rapidly by internet users.” Memes pervade our daily, digital-dominated lives, bringing laughs and retweets aplenty as creative folks churn new content from culture, sports and even financial markets. We now have “meme stocks” (see: GameStop Corp.) along with monetary memes.

As you may have also seen, about a year ago I noticed a meme floating around with two quickly sketched characters, the first of which with gritted teeth and tears of anger goes on a rant in ALL CAPS that began with “NOOOOO!!! YOU CAN’T ARTIFICIALLY INFLATE THE ECONOMY BY CREATING MONEY TO FIGHT AN ECONOMIC DOWNTURN!!!” The second character, positioned next to a logo of the U.S. Federal Reserve System and an inkjet printer with green money spewing forth, smiles and replies, “haha money printer go brrrrr.”

Good comedy always has truth to it. It’s a funny meme and the Fed’s “money printer” has indeed been going brrrr ever since the onset of the COVID-19 pandemic. After declining throughout the two years preceding the pandemic, the Federal Reserve Bank’s balance sheet assets have more than doubled to $7.74 trillion measured by Total Factors Supplying Reserve Funds per Bloomberg.

Fed Chair Jerome Powell and the Open Market Committee face a dual mandate of pursuing price stability and full employment. As public health conditions forced a massive economic recession of historic velocity and severity, Fed officials concluded that their dual mandate called for a proportionally historic monetary policy response. The flood of newly created dollars ensured that capital markets remained liquid and well-plumbed.

We now find ourselves at a unique crossroads. There is little question that the Fed’s money printer has elevated asset prices everywhere we look, from stocks to non-fungible tokens (NFTs) tied to digital art, NBA highlights and even tweets. The NFT craze looks like a textbook example of froth and mania.

COVID-19 vaccines are being deployed around the world. Unemployment continues to rapidly improve. Market prices for inflation expectations are marching higher with Treasury Inflation Protected Securities currently pricing a 10-year inflation rate of 2.32% as compared to 0.81% a year ago. Prices for all sorts of commodities are flying high. As an example, lumber prices have risen by 2.5 times since the start of 2020. Oh, and also, Congress just passed a new $1.9 trillion fiscal spending stimulus package.

A strong economic recovery seems inevitable. Fed officials met last week and seem to agree, as they raised their 2021 economic growth projections (in GDP terms) to 6.5% up from the 4.2% rate they saw in December. They also project inflation (in CPI terms) to quicken to 2.4% by year-end versus a December projection of 1.8%.

In the face of such improving expectations, it would be reasonable to see at least a change of tone from the Fed signaling a downshift in the speed of the money printer’s brrrr. We got no such thing. The Fed’s post-meeting statement said it would continue buying $120 billion per month in new Treasury and mortgage-backed security debt until “substantial further progress” is achieved in the economy. Chair Powell indicated a preference for “actual progress, not forecast progress” before winding down the current stimulus.

The Fed chair doth protest too much. Methinks the Fed is (perhaps willfully) behind the curve.
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 J.P. Szafranski is CEO of Meliora Capital in Tulsa (www.melcapital.com).