Reading the Fed Tea Leaves

The Federal Reserve Banking System is a political institution.  It is not a philanthropic institution, nor is it an academic one.  Nor is an honest bank, one that takes in money from willing depositors and makes loans to willing borrowers to make a spread.

The Fed is a political institution.  Its politics are hard left.  Its very existence is a tribute to leftist economics.  And it will tilt the scales of the economy to help the Democrats at the ballot box in November.

We have made this point repeatedly and wonder how anyone can possibly dispute it.

Although still far from its goal – itself made-up, unsubstantiated leftist claptrap – of a 2 percent inflation rate, we warn that the Fed will move heaven and earth (and maybe a few data points) to goose the economy just in time to help the Democrats.  

That means we expect an interest rate cut in September.

Here is Fed chairman Jerome Powell a couple of days ago.  “We think the time (for a rate cut) is approaching. If we get the data that we hope we get, a reduction in the policy rate could be on the table at the September meeting.”

A rate cut will give Kamala Harris, Karine-Jean Pierre, and Joe Biden something to crow about until election day.  And the lapdog press will run their rah-rah machine at full volume.  In fact, they won’t just turn the cheering for Bidenomics up to 10.  They’ll run it up to 11.  

That’s one louder!

The practical effect of forcing rates down is more money-printing to fund America’s $35 trillion national debt.  Usually the biggest debtors (Washington is the biggest debtor in the history of time!) have to pay higher interest rates to offset the risk that they will have trouble meeting their obligations.  But Washington will force rates down instead, and will have to run the printing presses.

It all looks very familiar to us.  We remember the inflation of the 1970s.  It appeared to be coming down, so the authorities did everything wrong and inflation rebounded massively.  

Here’s a chart:

The dashed orange line represents annual changes in the Consumer Price Index from 1966 – 1983.  The inflation rate fell, only to explode back to double-digit territory.

The blue line is the CPI from 2015 until now.  

Look how closely they track one another.  Eerie, isn’t it?

Gold prices skyrocketed, just as we expect them to now when the Fed reignites inflation.  It’s the same old funny money story!