Summary

The Fed is concerned about inflation not simply because of the potential strength of the US economy but because the Fed believes banks are highly leveraged due to their large excess reserves.  As a result, the Fed believes that when banks perceive the economy is growing reasonably strongly and the credit quality of loans has improved, they will lend more than they would have otherwise.

An “unwarranted” Fed tightening is unlikely to setback or damage the economy.  The historically low level of interest rates not seen since the 1950s combined with a market that has already priced in potential tightening will probably be able to absorb a premature Fed tightening with minimal damage.

About the author:

Jeff Klearman is the Chief Investment Officer of Rich Investment Solutions and a Registered representative of ALPS Distributors, Inc.  Rich Investment Solutions is the sub-advisor to the US Equity High Volatility Put Write Index Fund (ticker HVPW) and the ALPS Enhanced Put Write Strategy ETF (PUTX).

ALPS Advisors, Inc. is the Investment Adviser to HVPW and PUTX, and ALPS Portfolio Solutions Distributor, Inc. is the Distributor for HVPW and PUTX.

ALPS Advisors, Inc., ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. are all affiliated entities.