In an excellent interview on CNBC this morning, Paul Tudor Jones echoed what many on Wall Street have been thinking and we have been writing for the past year or so.

Inflation could be “much worse” than feared, billionaire hedge fund manager Paul Tudor Jones says. “It’s probably the single biggest threat to certainly financial markets and probably I think to society just in general.” https://t.co/OoMbhdnsm0 pic.twitter.com/yCP11BVELO

— CNBC (@CNBC) October 20, 2021

Has the Fed committed a policy mistake? Most certainly. Even more outrageous, it did so deliberately.

If yours truly, sitting in his home office with a Mac Pro and a public school MBA, can accurately forecast soaring CPI long before the convenient supply-side disruption pretext came along — then the Fed’s brain trust of MIT grads with supercomputers certainly saw it coming even sooner. How did they respond (besides protecting their own portfolios)?

1.  changed their inflation target language to accommodate higher inflation
2.  lied about their expectations of it being transitory
3.  continued to pour $120 billion per month into fixed income markets
4.  manipulated interest rates lower with said injections of QE
5.  thereby eliminating price discovery in bond markets, potentially permanently
6.  reinflated bubbles in virtually every financial and real asset market
7.  reduced housing affordability to 13 year lows
8.  enriched the top 10% of Americans by $17.5 trillion
9.  subjected the bottom 50% to contracting real discretionary income

The kicker is that they are still pouring $120 billion into the markets every month, even though they have publicly admitted that inflation has “surprised” to the upside and is not transitory. This is in stark contrast to Powell’s assurances that the Fed would use its “tools” to prevent such an occurrence.

Now, I don’t for a minute believe the Fed is an evil cabal bent on ruining the middle class and subjecting the poor to unbearable hardship. I believe they entered into the latest round of QE with the intention of staving off an economic collapse and saving financial markets from crashing even further. They successfully accomplished this.

But, somewhere along the way, probably in June 2020 as SPX fell below its 200-DMA for the second time, the conversation turned to making sure the rally continued. It took almost 10 weeks, but on Nov 4 SPX rose above 3393 for the last time.  It hasn’t looked back, bouncing on its 50-DMA over and over until last month when it finally backtested its 100-DMA – registering a meager 5.9% decline.

The Fed has demonstrated the astounding power of its tools: ever-increasing oil prices, currency manipulation, interest rate manipulation, and the periodic crushing of vol. But, it has caused, not moderated, higher inflation.

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