The Fed Is Suffering from Tantrum Paranoia
https://www.bloomberg.com/opinion/articles/2021-05-26/the-fed-is-suffering-from-tantrum-paranoia
https://www.bloomberg.com/opinion/articles/2021-05-26/the-fed-is-suffering-from-tantrum-paranoia
https://www.washingtonpost.com/opinions/2021/05/24/inflation-risk-is-real/
https://thehill.com/opinion/finance/554058-should-the-fed-be-less-complacent-about-inflation-risks
The Fed should soon embark on tapering (and ultimately ending) its asset purchase programs. Given the ongoing real estate boom and the low interest rate environment, it is hard to rationalize monthly central bank purchases of $80 billion of U.S. Treasuries and $40 billion of mortgage-backed securities.
In addition to limiting liquidity injections, the Fed should focus on reducing excessive risk-taking in certain corners of the financial market. In particular, the hands-off approach towards cryptocurrencies may no longer be appropriate. The U.S. central bank also cannot underestimate the longer-term risks posed by the emergence of decentralized finance.
The Fed should also abandon its commitment to maintaining near-zero policy rates until the end of 2023 and be open to an interest rate hike in 2022 if inflationary pressures become entrenched. Persistently high inflation is a slippery slope that may lead to rising inflation expectations, which may necessitate a painful monetary contraction in the future.