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With Bond Yields Slipping, How Long Can Inflation Be Transitory?

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Capital markets seem to be a bit confused as to what to do next. As Federal Reserve Chair Jerome Powell testified in front of House and Senate committees over the last two days, there doesn’t seem to be any additional clarity in my eyes.

I wanted to wait until the Fed’s testimony concluded before publishing today’s opinion piece to gain any additional clarity on the markets.

There is a conundrum that exists right now. We keep getting higher inflation readings, and the Fed has already telecasted that higher rates are in the cards in 2023 (maybe 2022). Inflation is a problem and needs to be tamed. One way of taming it is to raise interest rates. There are other tools at the Fed’s disposal to tame interest rates, like tapering. The question becomes: At what point is action going to be taken?

As the Fed testified in Congress yesterday and today, interest rates fell and the price action seemed anything but typical following Wednesday’s poor 30-year bond auction. We get it. The markets are addicted to low interest rates, but unless hyperinflation is the goal, it feels like something needs to change soon. When will the Fed begin tapering bond buying? How about

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