Mystical hold of ‘transitory’ tempts huge Fed error

BloombergOpinion/Mohamed A. El-Erian/10-25-2021

bar chart showing the yield on inflation indexed 10 year security a proxy for real yields
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System

“Failure to respond quickly and fully to persistent inflation would constitute the biggest monetary policy mistake in more than 40 years.”

USAGOLD note: “Fully” is the operative word in the sentence above. It is an either-or situation. The Fed either allows or pushes interest rates above the inflation rate, or it doesn’t. Thus far, it has been accommodating. Once tapering begins, however, it is a whole different story. And that is where the prospect of another taper tantrum enters the picture. The chart above shows the net yield on inflation-indexed U.S. Treasuries (10-year) – a proxy for real yields.

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