How do we avoid massive inflation at this point? We can't raise interest rates. What else can they do to curb inflation?

Seems inevitable

Every knee shall bow and every tongue shall confess

Probably best not to believe any numbers you see them put out, nor fully believe all of those put out by public companies.

I would want to learn more about these junk bonds.

My gut instinct is that it's coming from the REIT market since the commercial mortgage market is under heavy threat.

REITS already got hit last few weeks and have made big rebounds. Most from 50% to 300% gains in the last week.

All A&M said:

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Data came out yesterday for the previous week. The Fed increased the balance sheet another $271B so the total for the past 5 weeks is $1.842T. They also started buying junk bonds.

It is what it is. I can't do anything about it, but I can adjust my investment strategy to it. I'm thinking of making the following changes:

Decrease Overall Fixed Income Allocation but increase TIPS
Increase REIT stocks
Increase Tech stocks

Thoughts?

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TIPS already have inflation expectations baked into the price/yield dynamic. To overweight to them, you are not betting on inflation, rather you are betting on your expectation of inflation being more correct than consensus.

So you are okay with the markets going up artificially? You are right that when the Fed balance sheet is increasing, the markets follow suit. However earnings for the S&P 500 since 2015 have been pathetic. Cheap money allows companies to over leverage themselves/buy back shares (see current problem in airline industry).

We've already seen inflation and will continue to. Stop looking at the government produced inflation numbers taken from pools of what they call "stable goods". All you are seeing is the result of government intervention, regulation, and heavily suppressed price as a result.

In the real world, inflation is everywhere.

We would be best to finally get away from FED policy that attempts to control inflation and instead try to get rid of the inflation disease altogether. But that's a fiscally responsible monetary policy dream that will never happen.

There is a little bit of a game going on here. The Fed is getting lots of mileage out of announcements.

They certainly have continued to purchase lots of Treasuries and MBS.

In the last week....

Repo with the Primary Dealers declined by $70B
Reverse Repo declined $160B presumably as Money Market Funds shifted away from deposits with the Fed.

They have added the new Foreign repo facility (FIMA) to the balance sheet but it still appears to be zero. Likewise, they are now reporting on their CMBS purchases. However, these are only $3.4B so far.

https://www.federalreserve.gov/releases/h41/current/default.htm

As for the rest of the alphabet soup of facilities, they show up under Fed Assets as Loans. These appear to be up about $12B from last week to:

PDCF - $33B
MMLF - $53B
PMCCF - $43B

There are interesting questions around the dynamics of the recent surge of IG issuance and these Fed facilities. Maybe someone has some insights there.

YMMV

Yeah I wouldn't worry about inflation... that's old school thinking for a different economy when the $ wasn't seen as the only safe haven in the world, and technology wasn't deflating goods left and right

The high level of IG issuances is partially driven by a volatile commercial paper market. I don't think there is inflationary concerns in the near or intermediate time horizon. I do think the Fed has done well to not mince words in the last few weeks.

I am intrigued that the Fed could be "dabbling" in HY bonds. Its one thing to purchase low-risk securities, but are they going to bail out HY markets? Leveraged loans too? You can't have efficient debt markets priced by risk, and then reduce the risk at the riskier tranches. The Fed could save businesses and creditors that are not struggling with liquidity, but are truly underperforming or over-leveraged. That seems like a real way to lull an economy or cause a credit bubble IMO. Unwinding these assets will also cause volatility and be a separate headache.

Hopefully, the Fed's exposure to HY and leveraged loan markets will be limited and very strategic.