“Fed Expects to Keep Its Key Rate Near Zero Through 2023.”

The Federal Reserve foresees the economy accelerating quickly this year yet still expects to keep its benchmark interest rate pinned near zero through 2023, despite concerns in financial markets about potentially higher inflation.

With its brightening outlook, the Fed on Wednesday significantly upgraded its forecasts for growth and inflation. It now envisions the economy expanding 6.5% this year, up sharply from its previous projection in December of 4.2%. And the Fed raised its forecast for inflation by the end of this year from 1.8% to 2.4% after years of chronically low inflation.

On Wall Street, investors registered their approval of the Fed’s low-rate message, sending stock indexes higher. And the closely watched yield on the 10-year Treasury note, which has surged in recent weeks on inflation concerns, declined slightly.

Still, the Fed’s upgraded forecasts will raise questions about what would cause it eventually to raise its key short-term rate, which affects many consumer and business loans. As the economy strengthens, the policymakers think the unemployment rate will drop more quickly than they did in December: They foresee unemployment falling from its current 6.2% to 4.5% by year’s end and to 3.9%, near a healthy level, at the end of 2022.

That suggests that the central bank will be close to meeting its goals by 2023, when it expects inflation to exceed its 2% target level and for unemployment to be at 3.5%. Yet it still doesn’t project a rate hike then.”

Comment: We are going to ride a flood of funny money to enormous prosperity and very high market levels. The DJIA closed above 33,000 today and that is just the beginning. IMO the Fed’s estimate of the ultimate levels of inflation is far too low, but the ride up before the crest is reached will be breathtaking. pl


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25 Responses to “Fed Expects to Keep Its Key Rate Near Zero Through 2023.”

  1. Chris P. says:

    Count me as a skeptic.

    I suspect we are about to get a lesson from Mother Nature on why you can’t print your way to prosperity. Initially all this “free” money will seem great, the party will be hopping’ as long as the punch bowl keeps getting spiked.

    Any “growth” though will be outstripped by inflation. Real GDP and nominal are two different things, as any Fed economist should know. Once realization that all we’ve done is mess with the denominator and not create any real growth hits, the party is over.

    Until then enjoy your stimulus checks or SPAC gains.

  2. Bill H says:

    Why the Fed or the BLS has any shred of credibility is beyond my comprehension. The Fed thinks that the stock market and housing prices do not represent inflation, and the BLS thinks that people who are not looking for work are not unemployed.

  3. Fred says:

    The wipe out at the end is going to be better than anything you saw in “The Endless Summer”. I also note on Patrick’s last Russian Federation Update post that their government debt (17.8 percent of the country’s GDP according to the linked report) is a fraction of ours.

  4. LondonBob says:

    Equities perform poorly in high inflation, so does property, gold and commodities perform the best, by some margin.

  5. The Twisted Genius says:

    US dollars, Bitcoins, gold and platinum, Wall Street speculation and short selling, the whole lot is no different than tulip mania. It’s all a cultural construct to allow larger society and the economy to function. As I see it, inflation happens when buyers and sellers mutually agree to higher exchanges in the going currency for goods and services. If we stop believing in the charade, we’ll end up falling back to bartering. That would cause immense pain and suffering, but it may be preferable in the long run.

    • Pat Lang says:

      I will go along with the joke until I decide to leave equities altogether.

      • The Twisted Genius says:

        Same here. I’m way too comfortable in this culture of ours to begin calling out the emperor’s nekkedness.

        • Pat Lang says:

          I am too old to be cautious. BTW, it has become obvious that many localities are using COVID vaccine appointments for political patronage.

      • roberto says:

        By then it might be too late.
        I think Bernard Baruch got it right when he said:
        “I made my money by selling too soon.”

    • Fred says:


      “It’s all a cultural construct to allow larger society and the economy to function.”
      Inflation as a cultural construct? Tulip mania wiped out lots of fools but didn’t destroy the Dutch economy, unlike multiple other examples of irresponsible central government spending.

  6. Deap says:

    Political – they don’t want Biden targeted for crashing the stock market with his economic malfeasance – so they artificially keep interest rates at zero.

    Their cadre of 20 million government employees don’t have to worry about their own tax payer backed guaranteed pension plans; just us stiffs in the private sector who planned on a little fixed income security at the now long gone 4%.

    CARES porkulus in action – private sector forced to bail out the public sector.

  7. elaine says:

    Likely I’m displaying my true ignorance but here it goes anyway:
    If Glass-Steagall were still in effect could little retail investors still
    be earning reasonable interest on Cds, etc while farming the outrageous
    high national debt onto the investment banks?

  8. blue peacock says:

    Col. Lang,

    The Fed’s forecasting record for any metric they provide including GDP is abysmal. All one needs to look at is their forecast vs actual track-record over the past three decades. A long enough time sample to get the sense of how inaccurate they’ve been with their forecasts.

    Inflation whether it is the CPI measure or PCE is just a made-up construct that has no bearing to the actual inflation that Average Joe experiences in real life. While the Fed has been claiming deflation & disinflation and has made up a new mandate for a 2% inflation target, the reality on Main St is quite different. Ask anyone what the cost increases have been over the past “disinflationary” decade, on their health care premiums, kid’s college tuitions, cost of food at the grocery store (not to mention shrinkflation – price & packaging remaining the same but content reduced), rent’s and home prices, cost to launder a shirt at the local cleaners, etc. The BLS’s CPI metric has been under-estimated through hedonic adjustments & OER and other factors including not weighting accurately the different components of the Average Joe’s actual expenditures.

    What the Fed has signaled is that financial speculation can continue on unabated. And the Party of Davos who owns the government, Congress, the SEC and the Fed is thrilled as their speculative gains remain privatized while their speculative losses will be socialized.

    The reality however is different. Rising total credit market debt which is what Fed money printing enables on steroids, actually suppresses real economic growth and clearing out the deadwood. Let’s not forget that the Fed is actually rather conservative compared to the Bank of Japan, the Swiss National Bank, the Peoples Bank of China, and the European Central Bank, at least in terms of the size of their balance sheet relative to the size of the “inflated” real economy measured by GDP. What is left unspoken, is that while the Fed and other central banks claim why they’re printing money at scale is to provide accommodative financial conditions to support the real economy, the reality is that they have no choice, lest the debt edifice collapse. Maturing debt not only has to be refinanced but even more is required to keep the zombies afloat. They have no ability to shut-off the spigot and have to continue this near exponential growth rate. There is too much systemic debt and the Party of Davos will not go broke. They have to keep extracting from the bottom 90%.

    I would encourage this Committee to read Lacy Hunt’s 4Q20 report.


    Looking at it from the perspective of a speculator, I would fade the reflation trade. Exhibit A is the commodities forward curves.

    • Sam says:


      I agree with your assessment.

      Greenspan, Bernanke, Yellen and now Powell are all beholden to Wall St. Bernanke is at Citadel. The same front-running outfit that paid Yellen $800K for a couple speeches. Powell was at Carlyle where he made over a $100 million. Yet these guys masquerade as if they’re for the little guy. Only the gullible will buy into that. But most of America are that. So few understand how the financial system actually works, especially now that we’ve financialized the economy.

      Yup, fading the reflation trade is a good speculation. IMO, buying Treasury bonds and growth stocks is a better speculation in this Fed induced liquidity environment than commodities.

      • blue peacock says:

        Buying crude when spot was trading negative would have been the time to play the reflation trade.

      • Deap says:

        What share of “Wall Street” volume comes from trading public pension funds? Calif CalPERS (state pubic pension) is I believe the largest sovereign wealth fund in the world.

        And CalSTRS (state teachers pension fund) comes in a pretty close second.

        When one talks about “corporations and Wall Street” one again is talking about the driving power of public employee wealth funds. Keep in mind in California these massive public pension funds promised 8% returns, without fail or variation.

        How much public fiscal policy is driven to ensure public pension funds meet that 8% goal?

        • Sam says:

          most public pension funds, university endowments, sovereign wealth funds, insurance companies are typically fund of funds. They invest in hedge funds and other funds like commodity funds, REITS, etc that do the trading.

  9. Poul says:

    Printing money like that is only a problem if the economy is lacking excess capacity. Then it generates inflation which I find highly unlikely giving the present circumstances.

    However one point I have not seen addressed is that giving that 10% of Americans own most of the income generating assets in the US, the freshly printed money will sooner or later end up in their hands and give them a huge boost in economic power to influence politicians. Unless you take most of that money away from them via taxes.

    To BP,
    Another way the National Banks could have solved the problem was “pure” monetization a la the WW1 period. No issuing of debt, just cash. We would still not have seen inflation (as the money supply would go up with same amount) but would have avoided the debt issue. If it is an issue.

    Japan shows the way with decades of BOJ’s purchasing of state debt.
    Japan is not Zimbabwe. There has been no loss of confidence in the Yen as there have been no capacity problems which Zimbabwe is plagued by.

    • Bill H says:

      “Printing money like that is only a problem if the economy is lacking excess capacity “ is certainly a popular aphorism, but it’s bunk. Today’s economy is a case in point. That money has to go somewhere, and since almost nobody is using any of the “market capacity,” the money goes into real estate and the stock market and causes massive asset inflation. Asset inflation is wonderful until it isn’t, and when it is no longer wonderful it is utterly disastrous.

      • Poul says:

        Bill H.
        Yes, but who owns most of those assets?

        It’s the 10% richest Americans. Hence the point about political power. It’s a policy which benefits them unless you have taxes taking most of the profits away again.

        There is also population differences which matter.
        Look at Japan they have been doing this for decades with deflation as the net result. The BoJ owns about half of Japanese government debt. Do you see asset inflation in Japan? Wages and prices have stagnated in Japan.

        Their demographics is different from the US’s with an older population but the US is moving in the same direction. So unless you open up for large scale immigration you will see the same results.

    • blue peacock says:


      The global trading and financial system is rather nuanced and more complex. Linear analysis is not always the best.

      Take capacity slack using pharmaceuticals as an example. Most pharma including vaccines (excepting covid) are imported into the US. I believe the number is like 80% with most pharmaceuticals coming from China. There is plenty of manufacturing capacity globally. Yet, pharma prices have ben rising in the US for a very long time with I believe at a double-digit CAGR. Why? US market structure. We have had growing market concentration in the US across practically every segment for decades. While the BLS’s CPI says there’s no inflation and indeed there’s very little wage inflation except if you’re corporate executive, the reality is that prices paid by the average person for most things has continually risen. Gone are the $1 tacos which now have become $3. The cost of living for a working class family has gone up substantially when one considers that health care costs have risen at a 9% CAGR for 30 years, college tuitions, rents and home prices, etc. We see that in erosion in the standard of living for these families.

      Yes, Japan is not Zimbabwe or Argentina and now Venezuela. Rudy Dornbusch studied currency crises and in every case it was a change in psychology – when confidence is lost. And one of his famous quotes is, “In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.” It is easier for foreign investors, trading partners and citizens to lose confidence in Zimbabwe sooner than Japan. Since the global trading system is based on US dollars, we can skate longer than everyone else.

      Now, let’s take a look at some of the consequences of the BOJ policy. There is no JGB market any longer. The BOJ is the buyer of first and last resort as the BOJ owns nearly 60%. The BOJ is also a Top 10 holder of every stock in the Nikkei 100 through their purchase of ETFs. There is no longer real price discovery. If we take it to its logical conclusion would the BOJ own all business equity in Japan and all government & corporate and consumer debt? What are the implications?

      The SNB, creates new Swiss Francs with the click of a keyboard, converts them into US dollars in the forex markets and then turns around and buys Apple & Google stock. They are ostensibly doing this to prevent the rise of the SFR relative to EUR. What are the implications for capital markets down the road?

      Currently structured Fed QE drives reserves into banks. Yield suppression drives lower incomes for the banking system making them weaker. Consequently they don’t want to lend to higher risk loans to small businesses, instead they prefer to speculate in financial assets and hold even higher percentages of “high-quality” collateral like Treasuries which are being shoved out at increasing rates, especially since 2008, when losses on financial speculation were bailed out. Banks are also consequently providing increasing financing for financial speculation through asset-backed lending and other vehicles. As Bill H notes, we have seen and continue to see significant inflation in financial assets, homes, collectibles, yachts and other assets that the oligarchy own. They are the one’s with the “capital”. The Bottom 80% practically have no ownership in financial assets.

      Th reality is that debt is rising across the board, globally, – government & corporate. There is also a growing massive embedded debt in financial derivatives. The offshore dollars through the “eurodollar” system is gargantuan and there is no real effective control. There is no actual price discovery in financial markets when central banks are significant players with uneconomic decision making. Risk tolerance waxes & wanes. The problem is that rising debt suppresses general productivity as the marginal productivity of debt declines. We don’t know if & when psychology changes and how and what the reaction to that may be considering the unstable & electronic global financial architecture & flows in an increasingly financialized US economy.

      • Poul says:


        What BOJ is doing is basically giving cash to the government. That money will never be paid back. So any inflation will already have been created with the increase in money supply. As for the market distortion of the price on bonds. I agree. Which is why I think “pure” monetization is a better choice. It would be like Milton Friedman’s helicopter money.

        Hyperinflation a la Zimbabwe is not something which happens overnight. It takes years where you can observe the increase in prices and wages which are the key in creating hyperinflation.

        Wikipedia has a good chart of inflation in Zimbabwe. They were running inflation numbers in the double digits for years before their currency blew up.

        As for college I can’t see the inflation as the services offered today is not the same as 30 years ago. When you read articles about the rising education costs it’s clear that you have three primary factors.

        1) low wage increases for decades for the low and middle income families in the US.
        2) reductions in various government subsidies to college education.
        3) colleges increasing costs by investing in extra student services which are not part of their core service – education.

        The problems of college costs IMO is not inflation but a result of the above points

  10. blue peacock says:


    There’s no free lunch. Been tried by human societies for millennia with the same results.

    Inflation and deflation in the abstract are meaningless terms. Good analysis requires specification of what is inflating and deflating. Deflation in goods & services prices is the natural order when productivity is rising. That is a good thing as it increases the standard of living through increased purchasing power. This is exactly what happened in the US during large stretches in the 19th century.

    A McD burger cost $0.15 in the late 50s. It costs $2.50 now. BLS say that we have a new & improved McD burger and so you get “more” burger now than in the 50s, that’s why you actually pay “less” – ergo deflation says the Ph.Ds at the Fed. Some may prefer the same burger from the 50s, but they don’t have that option. Similarly, college tuition for getting a BA in mathematics has risen considerably. Maybe you argue that the newly minted BA in mathematics is way more improved than the one in 1980. Maybe a working class family is quite happy with the old BA curriculum, but they don’t have that option today. They just can’t afford to send their kids to get that new & improved BA. What the Fed and BLS are saying is just sophistry. At the end of the day, the standard of living for working class families has eroded since the 70s, since their wages have not kept pace with the cost of the goods and services they purchase.

    While correlation is not causation, the growth in student debt is highly correlated with the rising cost of college education.

    In Japan, the BOJ’s actions have not only financed the government. Purchase of ETFs including corporate bond & stock ETFs, means those that held shares & bonds in companies in the ETF also received cash when they sold their ETF share to the BOJ. Companies were able to issue more stocks & bonds at inflated prices and raise further capital. Of course very little of that money was invested in new plants because there’s declining domestic demand as the Japanese population is aging & declining. Corporate America similarly has taken advantage of Fed balance sheet expansion by levering up their own balance sheets. But they didn’t use it pay higher wages to working class employees or invest in PPE, they used it to buyback stock and other financial engineering that increased the compensation of management and financial investors. The airlines used their cash flow during good times and levered their balance sheet to buyback stock. When travel collapsed last year, they needed government bailouts. None of the managements paid a price. This perfectly exemplifies the symbiotic relationship between Big Business & Big Government and how the financialized US economy actually works.

    The Fed and other central banks, economics Ph.Ds, media experts and the politicians have to obfuscate the terms inflation & deflation. It is not goods & services prices deflating that’s the issue, it is debt deflation. It is deflation in financial asset values. That’s what they’re really concerned about. It makes sense since that is what the Party of Davos is concerned about. The latest Fed Z.1 is clear. Credit market debt in late 2020 was $83.5 trillion – 400% of GDP. US public debt (federal + state) is $26.8 trillion – 128% of GDP, so the rest is business, financial & consumer. They can’t allow this debt to deflate as it will collapse financial assets which are by & large owned by the oligarchs. They got a taste of that in 2008. Debt jubilee, cold fusion, MMT and other theories of sophistry will be continuously spouted by the Ph.Ds as the rate of debt growth has to be continually increased to keep financial asset values growing and the debt edifice from imploding. And we’re not even considering any of the unfunded liabilities like pensions and future healthcare costs. None of this debt can be repaid with currently stagnant productivity growth. So the theories & actions will have to get even more extravagant in the future. The Party of Davos will extract from the Bottom 80%. None of this new. From John Law to Rudolf Havenstein and now Ben Bernanke, Janet Yellen and Jerome Powell at the end of the day the basic situation is the same – mismatch between balance sheet liabilities & cash flow.

    The way out of this mess is not UBI, debt forgiveness, MMT, or QE infinity. The way out of this mess is to encourage innovation, educate our children, make it easier & more affordable to create a business and patents things; do away with cost barriers between local & box business


    • Sam says:

      Policies that incentivize investment in Main St is antithetical to the interest of Wall St. Securitizing income streams, rent seeking, clipping a coupon on every buck of debt issued, financial engineering corporate America and playing speculative games with all the paper they create is what’s in their interest. They own DC lock, stock and barrel.

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