Chairman Powell’s “Wait and See” Approach May Let Price Inflation “Run Hot”
Once you heat up a pan on a stove top, the pan will stay hot as long as the stove top continues to provide heat, even if you ignore the stove top.
Right now, CPI inflation since 2011 is providing “heat” like a stove top. Future rate hikes are the “pan,” and it seems like Chairman Powell wants to ignore the stove top.
Just look at the FRED chart below…
What Powell is calling “muted inflation pressures” doesn’t seem to be muted at all. Since the 2011 inflation spike, CPI inflation has stabilized at dangerous levels according to Robert Wenzel, referring to Powell’s comments (emphasis ours):
Since the M2 money supply has also been increasing at a steady rate since 2011, the “serious upside spike” in inflation Wenzel is referring to may come to pass.
Then, who knows if we may revisit 1980s inflation levels as rate hikes boil over?
“Wait-and-See” Has Uncertainty Baked into It
Powell is good with words, but dig deeper, and you get a sense of the uncertainty in his remarks. Two recent examples from a recent 60-Minutes interview help to illustrate this.
First in a recent Newsmax article that reported on the video interview, Powell explained what “patient” means as it applied to rate policy…
The fact that the Fed doesn’t “feel” in a hurry is key. Powell seems to define “patient” in terms of a relaxed emotional state, rather than reacting to what is actually happening with CPI inflation (setting aside “real” inflation). His “relaxed” wait-and-see approach doesn’t inspire confidence in light of this.
Finally, Powell seems to attempt to absolve the Fed of responsibility in further comments from the same 60-minutes video, by claiming his magic “benchmark rate” was somehow growth-neutral…
He seems to have carefully used “holding it back” in his comment to reassure investors and economists that his policy implementation isn’t culpable for results. It also seems odd he used “roughly,” which implies the benchmark rate wasn’t “exactly neutral.”
If Powell’s interest rate policy isn’t exactly neutral, what is it? He doesn’t seem to know, and that screams uncertainty. Not good.
Don’t “Wait-and See” if Your Retirement Plan is Solid
If hyperinflation that mimics the 1980s hits the U.S. again, your money may not be safe. And it’s obvious from Powell’s uncertain remarks that you shouldn’t blindly trust the Fed.
Hyperinflation is already happening in Venezuela, and is always lurking behind the curtain. Even, in an economy as large as the U.S. To prepare, you’ll want to make sure your portfolio has a firm foundation that responds well to economic inflation.
This foundation can be built with assets such as physical precious metals. Metals such as gold and silver are historically known to do well during inflationary periods, making them a valuable asset during a time where inflation could run hot.
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