OVERHEATED ECONOMIES AND MARKET PREDICTIONS
Janet Yellen said the following last week…
“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat”
Later that same day, she said this…
“It’s not something I’m predicting or recommending. If anybody appreciates the independence of the Fed, I think that person is me, and I note that the Fed can be counted on to do whatever is necessary to achieve their dual mandate objectives.”
Also last week, we heard from the Federal Reserve which released the following statements on Thursday, May 6, 2021…
- Rising asset prices are posing increasing threats to the financial system, the Federal Reserve warned in a report Thursday.
- “Asset prices may be vulnerable to significant declines should risk appetite fall,” the central bank said.
Before we can understand how to interpret these statements and any possible conflictions, there are four key topics which need to be explained: inflation, the Federal Reserve, interest rates, and the economy.