Inflation has come down from the highs registered last summer, but most recent data is showing that it's becoming "stickier" at uncomfortably high levels. For example, PPI released yesterday came in at the highest reading since last June.
This is prompting various analysts to revise upwards their terminal Fed Funds target rate, now expected to peak at 5.25-5.50% from 4.50-4.75% currently. That's 0.25% higher than previously expected.
At the risk of my becoming repetitively boring, that's not enough. Until and unless the Fed truly bites the bullet and starts to drain liquidity in earnest, ie to sharply reduce the size of its own balance sheet, inflation won't come down rapidly. Why? Because inflation is a monetary phenomenon, more money = more inflation.
Looking at monthly changes in the Fed's assets, we see the pumping of huge amounts of cash into the system, as much as $590 billion per week, during the COVID era (see chart below-red circle). By comparison, the draining of this flood is extremely timid, at around $ 20-25 billion/week (yellow highlight).
Once again, then: if the Fed really wants to fight inflation it better look at its own house first and start selling bonds from its portfolio.