Kudlow: I'm getting worried about inflation

hello everyone welcome to kudlow i'm larry kudlow i want to begin this evening with some thoughts on today's senate hearing with treasury secretary janet yellen and fed chair jay pell and the hearing had the perfectly awful title cares act oversight of the treasury and federal reserve colon supporting an equitable pandemic recovery end quote our first guest by the way is senator pat toomey and he attended the hearing he's going to give us his curbside report but i want to note that during this pandemic emergency period going all the way back to february 2020 last year i want to talk about the federal reserve the federal reserve has truly done its part to inject cash into the economy by our calculations over the past 18 months the fed has actually basically doubled its balance sheet from 4.1 trillion dollars to 8.3 trillion dollars so essentially they injected over 4 trillion dollars of new cash into the economy another way of looking at it through the m2 money supply which has jumped from 15.5 trillion to 20.5 trillion that's a gain of 5 trillion or 32 now these are numbers that you folks out there probably don't care about all right i get it we're getting into the weeds here but i like the weeds i started my career in the weeds some 48 years ago in open market operations at the new york fed yes indeed the only reason i'm putting these numbers on the table tonight is to show you just how big they are in other words while emergency pandemic relief fiscal policy spent about four trillion dollars last year another two trillion dollars this past winter and possibly had it for six trillion in the next month or two save america kill that bill the fed is doing its part by pumping in four trillion dollars of high powered cash leading to a 5 trillion dollar jump in the nation's money supply now all that fed new money was basically sitting idle for much of last year in the heart of the pandemic the government shutdown the economy was shut down most folks were playing defense they were hoarding their cash they were avoiding risk so the money supply really wasn't inflationary but as the economy has reopened through the vaccine miracle of operation warp speed the fed's continued pump priming right now really begins to threaten a longer term inflation problem now excess money is different from pandemic shortages in the economy although it takes longer for market forces to heal those supply chain problems continued fed cash injections is really completely different and it's a very worrisome matter there is a connection between massive federal overspending federal government overspending and massive federal reserve over pumping think of it this way while the budget deficits pile up the fed seems to be financing government spending and borrowing for example over the past 18 months the central bank has purchased get this 57 of the new marketable treasury debt that was issued 57 that is not supposed to happen folks you can go all the way back to the 1951 fed treasury accord where the fed stopped pegging long-term interest rates and stop buying wartime bonds in fact you could go all the way back to the 1913 original federal reserve act where the central bank's main purpose then was to provide an institutionalized currency elasticity but not to finance government spending and borrowing i remember it well i was there as a joke in latin america by the by and in some other places central banks do buy all the government's debt and print all the money and inflate the economy and destroy the currency now fortunately we're not there yet in fact king dollar is strong and reliable it's good it's very good gold hasn't moved in quite some time however commodity prices are on the rise suggesting powell and company are still too loose and even the cpi break-evens in the inflation-adjusted treasury bond market are showing gradually higher inflation expectations by the way the 10-year bond is now up to about a buck 55. so i must say i'm getting worried about inflation frankly the feds should have stopped buying mortgage bonds six months ago now maybe they're going to taper down their portfolio purchases in a couple of months but who knows and i will say the rise in long-term bond rates in recent weeks could be signaling the fed it's time to raise their target rate the fed funds rate before serious inflation breaks out meanwhile the fed and i presume the white house were right to dump the dallas and boston fed presidents for trading stocks and bonds that's a big no-no by the way we couldn't do anything like that in the executive branch but i am really concerned that more and more federal spending and more and more federal borrowing puts more and more pressure on our central bank to finance the democrats big government socialism cradle to grave welfare dependency assault on work and wages and jobs and prosperity remember the fed has an important tradition of independence but if they cater to the dems far left progressive wish list and if they finance it they're going to lose their independence we will lose the inflation rates and we will lose king dollar in the process and that would be most unfortunate so that's my riff for this evening

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Id: kZKahzyVGEA

Length: 6min 22sec (382 seconds)

Published: Tue Sep 28 2021