Debt—and Why the Fed Is Trapped
Commentary
The massive debt levels provide the single most significant risk and challenge to the Federal Reserve. It is also why the Fed is desperate to return inflation to low levels, even if it means weaker economic growth. Such was a point previously made by Jerome Powell:
“We need to act now, forthrightly, strongly as we have been doing. It is very important that inflation expectations remain anchored. What we hope to achieve is a period of growth below trend.”
That last sentence is the most important.
There are some important financial implications to below-trend economic growth. As we discussed in “The Coming Reversion to the Mean of Economic Growth“:…