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With the S&P 500 continuing to make all-time highs seemingly almost daily and the last 5% correction occurred 10 months ago, talks have resurfaced among Federal Reserve officials to reduce bond-buying programs. Robert Kaplan, President of the Dallas Fed, turns out to be one of the loudest voices. The following are all of Walter Bloomberg’s tweets yesterday:
In keeping with the latest taper talk, we wanted to republish our thoughts on a Fed taper that we originally published on May 29th of this year.
“The Federal Reserve’s monetary policy objectives are to promote economic conditions that achieve both stable prices and maximum sustainable employment.”
The Federal Reserve’s mandate has two stated objectives for its monetary policy:
- Stable prices
- Maximum employment
With these two stated goals, the Fed is implicitly telling the market that all taper talk is utter nonsense, and here’s why:
The entire economic system is built on credit, and in order to maintain full employment and stable prices (ie “2% inflation target”) credit must not be shrunk.
Let’s take a look at some current trends in the real estate market for context:
Median prices for single-family homes are up 14.6% year-on-year, fueled by record-low mortgage rates over the past 18 months.