Each moment of every day that passes as the FOMC sits on its hands while markets of all kinds tank is an opportunity missed to heed the behavior of TIPS spreads telling them they’re being dragged farther away from their nominal goal (the target). By leaps and bounds – out of control.

Yes, the problem started out as SARS-COV-2. But now, the FOMC has allowed going of the wrong way nominally, nearly unabated with no end in sight, and to the extent monetary policy is off course, it’s immediately being translated into a demand shock. Remember the mandates, guys? If M*V=P*Y, and TIPS spreads are headed south very quickly, the FOMC (and we) have a serious nominal problem.

THIS SHOULD NOT HAPPEN!

At least Bernanke and crew in 2008 had an excuse that may have seemed reasonable in the moment, looking at above target inflation forecasts for at least the next three quarters. We now know that those forecasts were incorrect.

There isn’t any reasonable excuse to have a contractionary policy today. Really, there hasn’t been any excuse for the last several years of undershooting, having seen the spreads flash on-target policy only briefly in the last decade. But it’s completely unjustifiable for it to continue at this moment when there haven’t been ANY on-target inflation forecasts for the foreseeable future and it’s getting much worse.

 There is no upside. All it will do is add unnecessary deflationary damage on top of real injury and disease. An ounce of prevention is worth a pound of cure, and there will be a ton of cure needed if nothing is done NOW.