For Peter Reagan at Birch Gold Group
Back in June 2022, after trying for months to brand the painfully obvious spike in inflation mere “transitory,” Chairman Powell finally guided the Fed to curb inflation by raising interest rates.
I thought then (and now we all know for sure) the Fed’s effort to cool inflation was both too little and too late. The only positive development was a general awareness among the public that inflation was not only real, it was a real problem.
That makes it a political problem, a major talking point in the national economic conversation.
Now, Wall Street crybabies don’t generally like rising interest rates. That means borrowing money is more expensive, and profitability more important. When money isn’t “free” any longer, unprofitable businesses fail. We’re watching the speculative mania of the last couple years, and all its highly-profitable Wall Street deal-making, sputter and grind to a halt.
Wall Street hates higher interest rates because they’re bad for business. But they can’t say that! Instead, they blame the Fed for going too far and driving the economy into recession:
BlackRock’s investment chief Rick Rider said central bankers were willing to push the economy into recession after being too lax on inflation last year, and 75% of economists in a Bloomberg survey said they expected the Fed to spark a recession within the next two years.
Mr. Rider is 100% correct about the Fed being too lax on inflation in 2021. Apparently, he thinks the solution is to stay “too lax” now that it’s cutting into his company’s bottom line.
And he’s right about the imminent recession – I expect an official recession announcement from the National Bureau of Economic Research before the end of the year. (The 2-year/10-year Treasury yield curve first inverted on April 1, 2022 and this unusual event has occurred 12-18 months before every recession in the last 60 years.)
A recession is inevitable. From the moment the Fed’s money printers started working overtime in a panicked response to Covid during the pandemic panic, the Fed carpet-bombed the nation with $7 trillion in new dollars.
This kind of economic violence causes problems. To extend the carpet-bombing analogy, inflation rapidly broke out like dozens, then hundreds of fires, converging into an inferno.
About a year and a half after we first smelled smoke, the Fed finally reached for the fire extinguisher.
Now, imagine the Wall Street types as a group of hobos standing around the house fire, trying to keep warm. Of course they’ll complain when the Fed tries to put the fire out! “Well, you shouldn’t’ve bombed us in the first place!” is both true and an extremely unhelpful thing to say.
Here’s the thing: as rich as the Wall Street crybabies are, they do not represent our nation’s best interests. After all, only 58% of Americans own stocks – but 100% of us are paying higher prices for our food, our fuel, our utility bills, our rent and everything else.
And the fire’s still burning…
The Fed’s inflation fight is nowhere near over
Unfortunately, inflation is still running hotter than any period over the last 30 years. That means the Fed has much farther to go. That’s tough for the Fed to admit – just as hard as it was for Powell to finally acknowledge inflation was happening.
A recent report confirms that even when using the “preferred” metric that’s easier for officials to swallow, the fires are still burning:
January data shows that inflation as gauged by personal consumption expenditures prices – the preferred metric for policymakers – was still running at a 5.4% pace annually. That’s well above the Fed’s 2% long-run target and a shade past the December level.
Powell said the current trend shows that the Fed’s inflation-fighting job is not over…
“We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do,” he said, adding that the road there could be “bumpy.”
The Fed’s “preferred metric” doesn’t account for energy or food prices, either. So don’t expect relief at the pump or the supermarket.
Wall Street cancels pivot party
Wall Street has been praying for the Fed to give up the inflation fight since late 2022.
And earlier this year, it looked like Wall Street’s wish might come true:
Heading into the appearances, markets had been looking for the Fed to raise its benchmark interest rate by 0.25 percentage point at its meeting later this month, then perhaps two more moves before stopping, with the end point around 5.25%.
Basically, it was the January inflation data plus signs that the labor market remains remarkably strong despite the Fed’s efforts to slow it down. That made Powell, who only weeks earlier had talked about “disinflationary” forces at play, switch gears and start talking tough again on monetary policy.
Say what you will about Powell, at least recently he’s paying attention to the numbers. (He never responds to the letters I write – but maybe he reads them?)
At the moment, it looks like the Fed has committed to putting out the inflation inferno, despite the wails of despair from the Wall Street hobos who were cooking hotdogs over those flames!
Now, that could change at any point in the near future.
So what should we do? How should we plan for our financial futures in such an uncertain present?
I believe we must set ourselves up for success no matter what the Fed does next.
Don’t let inflation, rate hikes or a recession wreck your financial future
As Pliny the Elder wrote 2,000 years ago:
“In these matters, the only certainty is that nothing is certain.”
Instead of live-streaming Powell’s Congressional testimony, or poring over the latest CPI spreadsheets, focus on things you can control. Consider whether any of the following might be smart for you:
- Can you reduce or eliminate dependence on credit? Loans get more expensive when interest rates rise.
- Learn more about inflation-resistant investments, so you can plan for future spending in today’s dollars.
- Are your savings well-diversified? If you’ve been disappointed by the 60/40 portfolio recently, learn what experts are advising now.
- For diversification, inflation resistance and store-of-value, you’d be hard-pressed to beatphysical precious metals. (Even if you’re a knowledgeable investor, the track record of a gold investment over the long term may surprise you.)
Especially if you find yourself seriously concerned about your financial future, it’s time to take matters into your own hands. I stumbled across this idea somewhere, and I can’t find the source, so, as an anonymous person once said:
The goal in investing is to get to indifference. That is the point where you don’t care what the market is doing.
I think that’s a worthy goal – to use worry or concern or fear about our financial futures as an indicator that something might be wrong, then fix it.
If nothing else, that’ll help us sleep better at night.