This is the problem that the Fed is pushing for – and it is not inflation, says the strategist

The recent rise in bond yields has finally attracted the attention of Federal Reserve decision-makers. Gov. Lael Brainard said on Tuesday that “some of these moves last week and the speed of movement caught my eye.” San Francisco Fed President Mary Daly said the central bank could change the maturity of its bond purchases – or even, as it has done in the past, sell short-term securities to buy long-term government bonds in a so-called “twist”.

Steven Blitz, chief economist in the United States and CEO of Global Macro at the research service TS Lombard, says that the Fed’s determination to keep interest rates low through quantitative easing drives another problem. Lending growth from commercial banks is slowing, at a time when the economy is accelerating.

Separation of mortgages – which banks do not keep in the balance sheet – commercial bank loans are growing by about 5% compared to the year before, according to the latest weekly data from the Federal Reserve. It is down from as high as 10% in April.

The Fed’s holding of government debt to manage returns is not inflationary because it requires the central bank to have commercial bank assets, Blitz says. Commercial banks do not care because the Fed pays them interest on what is essentially a risk-free transaction. The Fed now owns 16% of commercial bank assets, an increase from 6% in 2019.

“This exercise is a reminder that the Fed cannot forever protect the markets from the cost of financing the government debt, which is growing faster than nominal GDP. At present, the economy has lower interest rates than the equilibrium, but high reserves and capital restrictions mean to a greater extent that the banks cannot fully help others to take advantage of the growth through lending as these low interest rates would suggest, says Blitz.

Far from predicting an increase in inflation, Blitz says that the core measure of prices for personal consumption of prices will grow by only 1.3% in the fourth quarter and 1.7% next year. Blitz says the likely stimulus checks of $ 1,400 and COVID-19 vaccinations will boost the economy, but to a relatively lukewarm 4.5% year-over-year level in the fourth quarter and slow down to 2.8% next year.


Texas ends its worm-bearing mandate and eliminate all restrictions on business. Ride supplier Lift

increased 6% in pre-market trading after saying it had the busiest week since March 2020, as it reduced its loss estimate.

Rocket Cos.
+ 71.19%

will be in the spotlight, after the mortgage lender’s share jumped 71% on Tuesday, in a move compared to the short press that briefly lifted the shares in the video game retailer GameStop
Rocket stocks fell 7% at the start of actino.

Server and storage provider Hewlett Packard Enterprise Co.

reported stronger earnings than revenue and revenue for the first quarter of January.

The financial calendar includes the ADP’s measures of private sector wage labor, the ISM service report and the Fed’s Beige Book of Economic Anecdotes.

The market

After ending lower on Tuesday, US stock futures
+ 0.48%

+ 0.49%

pointed to a stronger start, with Dow industries
+ 0.59%

contract over 200 points.

The return on the 10-year treasury

was 1.44%. Bitcoin
+ 10.05%

futures topped $ 50,000, while gold

futures fell.

The diagram

Fund manager Columbia Threadneedle has compiled a return-to-normal index for the United States based on a variety of measures, such as travel, shopping in stores and eating out. It is not intended to track economic indicators such as gross domestic product, but is instead focused on measuring components of daily life. The latest increase was due to a return to personal schooling.

Random readings

Singer Dolly Parton converted “Jolene” track to “Vaccine” when she received the first dose of Moderna

She helped fund COVID-19 vaccination.

Octopus, unlike some toddlers, can pass the so-called marshmallow test, which is designed to measure self-control.

Here’s a deep value for you – a small porcelain bowl purchased for $ 35 at a Connecticut farm sale will be auctioned off. Broker Sotheby’s says it can fetch as much as $ 500,000.

Need to Know starts early and is updated until the opening clock, however sign up here to have it delivered once to your email inbox. That email version will be sent out at 7:30 p.m.

Do you want more for the day ahead? Sign up for The Barron’s Daily, a morning briefing for investors, including exclusive commentary from Barron’s and MarketWatch authors.