The FOMC released its latest monetary policy statement.  There was a unanimous vote to keep the target federal funds rate near zero.  However, it was also announced that a tapering will begin.

The Implementation Note instructs the following:

• Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent.
• Complete the increase in System Open Market Account (SOMA) holdings of Treasury securities by $80 billion and of agency mortgage-backed securities (MBS) by $40 billion, as indicated in the monthly purchase plans released in mid-October.
• Increase the SOMA holdings of Treasury securities by $70 billion and of agency MBS by $35 billion, during the monthly purchase period beginning in mid-November.
• Increase the SOMA holdings of Treasury securities by $60 billion and of agency MBS by $30 billion, during the monthly purchase period beginning in mid-December.

In short, the Fed will keep inflating, but at a slower pace.  It has been adding (creating money out of thin air) $120 billion per month to its balance sheet.  It will slow down the money creation by adding “only” $105 billion starting this month, and then $90 billion starting in December.  We don’t know after that.

So the monetary inflation will go at a slower pace than before.  We’ll have to see if the Fed gets to a point where no monetary inflation is taking place, or if some other event will happen before then.

The other notable thing is that the statement says, “Inflation is elevated, largely reflecting factors that are expected to be transitory.”

This was a change from the September 2021 statement that said, “Inflation is elevated, largely reflecting transitory factors.”

In other words, it seems that the Fed is now hedging its bets.  We can’t be sure that price inflation is transitory, but it is expected to be (according to our government models).

Maybe Jerome Powell and company had to stop and put some gasoline in their cars.

The Everything Bubble

With the release of the statement, stock market indices closed at record highs in the United States.  A little bit of tapering apparently isn’t going to stop this party.

The everything bubble goes on, which includes stocks, bonds, real estate, cryptocurrencies, and NFTs.  I will note that when all of this comes crashing down, bonds might do well in the shorter term, as they can be seen as a safe haven.

The cryptocurrencies have to be the most absurd aspect of this everything bubble.  While crashing real estate and stocks will hurt more people, the crypto portion of the bubble has to be the poster child of this nonsense.

It isn’t just about Bitcoin any more.  There are thousands of cryptocurrencies now in existence, and some of them are just going up in price because it is part of the latest craze.  It could be because of a unique name or because of a tweet from Elon Musk.  There is absolutely no utility from these cryptocurrencies other than to try to make money from the next sucker.  This is not to say that the blockchain and other technology used for cryptocurrencies don’t have utility.

Perhaps it is ironic that the original idea of Bitcoin and other cyrptos was to be a competing currency against the Fed’s dollar.  Yet, it is the Fed’s crazy inflation that is propping up these ridiculous cryptocurrencies with easy money.

The Fed has provided the money and the casino, so people feel like they might as well play the game as long as they are there.  You try to make a quick profit (in dollars) before the money dries up.

The Fed is cutting back on the money creation, but the money is not exactly drying up yet.