If the Federal Reserve shies away from its current policy of raising rates and tightening the money supply, it wouldn’t alleviate pressures in the market, at least not for long, according to investment analyst Michael Lebowitz. Instead, it may crush the economy.
The Fed started to tighten the credit spigots earlier this year in order to curb demand and slow down price inflation, which rose to 9.1 percent in June—a four-decade high. The tightening needs to continue until the inflation drops enough to instill confidence in the bond market, Lebowitz suggested in a recent Wealthion interview.
As the logic goes, if bondholders are confident enough that inflation will go down to the Fed’s target of 2 percent a year, they will be willing to hold bonds with relatively low yields. If the Fed returns to a loose monetary policy before such confidence settles in, bondholders will demand higher yields to offset losses from inflation they would expect to continue….