inflationPowell says "if sustained higher inflation presist we would certainly respond..." - NO. There is not going to be a response. It's game over. They have f-ed up the USD. You can have interest rate of 12% when the debt was $500 billion. Not when it's $28 Trillion. We cannot afford $3 Trillion per year in interest payment.
When the inflation comes home to roost, raising rate to even 2% means corporate, municipal bond selloff/defaults, credit market collapse, wide spread bankrupcies, deep recessions and decrease tax revenue, goverment will have to cut spending, increase tax, or lend out our military...which can actually destablize the country (the "R" word). We can't have that.
So there's going to be more cover up on inflation. Real rate will always be negative. The new money created will never be destroyed. Fed's balance sheet will keep growing. Have you ever wondered what the Fed will do with it's $8 Trillion when the trash matures? You guess it. More bond buying/swaping...which will become the norm. It is the "tapering" that will be transitory. The biggest losers? Those who are paid in USD for their work and savers getting robbed right under their nose.
The thing is, the market is not even recognizing this as a possiblity. If it did Gold would be at least $5000/oz now. The disconnect and sentiment being so negative is partly why I think the bottom is in. The Inverse H&S still in play. Chance are that equity market crash in October. Fed will not taper in November or that they will be forced to extend the length of tapering.