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Opening Statement from the December 2021 Dividend Gems

Opening Statement from the December 2021 Dividend Gems

Originally published on December 19, 2021

 

The Fed Doubles its Taper

On December 15, Fed chairman Powell announced doubling the monthly reduction to the Fed’s bond-buying program to $30 billion per month. Based on the new rate of the taper, the Fed’s bond-buying program will end by mid-March. Powell emphasized that the taper would continue to be adjusted as needed.

Acceleration of the Fed’s taper is significant because the Fed does not plan to raise rates before its bond purchases have ceased. Thus, the current taper would theoretically position the Fed to raise rates in March if needed (doubtful).

The conclusions of the Fed meeting are largely consistent with our forecasts which were previously discussed in the December 2021 Intelligent Investor as well as in webinars held in late November.

Inflation Overview

With inflation at its highest point in 4 decades, the Fed is now becoming seriously concerned that inflation could pose as a larger problem than previously estimated.

We believe supply chain issues (inflationary) are more severe than the risk of another economic lockdown (deflationary) which might arise (not likely in advanced nations, but very likely in Asia) as a result of a rapidly spreading and more virulent coronavirus variant and/or a variant that has developed significant resistance to vaccines currently in use. The main reason we believe inflation represents the biggest risk to the economy is due to...

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