22 Jul


The Fed insists inflation is transitory.  

But what does that mean?  Well, it does not really say.  

Month after month now inflation has been running hotter than expected.  Some of our friends and clients may remember Fed chairman Powell’s telling a Senate committee in February that inflation would not be a problem.

But when the evidence of higher prices became impossible to ignore, the Fed tried a new dodge:  inflation is only transitory.

We are not sure that is working now.  Last week Powell returned to the Senate and confessed that the Fed does not understand the prevailing inflation.

After months of higher-than-expected inflation, we will tell you what is transitory:  the Fed’s credibility.

It is not just we who say so.  Here are a few snippets of comments from members of the Senate Banking Committee during Powell’s latest appearance:

Senator Bill Hagerty (Tennessee):

“I’m very worried that the Fed’s continued level of asset purchases and balance sheet expansion is facilitating this runaway spending that the Democrats are imposing upon us, and adding to the inflationary pressures that these trillions of additional dollars are going to continue to add to our economy and continue to add to the debt that our children are going to continue to bear…”

Senator Thom Tillis (North Carolina):

“I’ve got to beat the inflation drum for just a minute here. The FOMC members insist inflation is transitory, but it hasn’t inspired a lot of confidence in me.”

Senator Pat Toomey (Pennsylvania):  

“The Fed’s policy is especially troubling because the warning siren for problematic inflation is getting louder. Inflation is here, and it’s more severe than most, including the Fed itself, expected….

“For the third month in a row, the Consumer Price Index was higher than expectations. Core CPI… was up 4.5% in June; the highest reading in almost 30 years….

“Now, the Fed assures us that this inflation is transitory, but its inflation projections over the last year have not inspired confidence. Last June, the Fed projected that PCE… would be 1.6% for the 12 months ending 2021. Then in December, the Fed raised that figure up to 1.8%. And how the Fed’s most recent PCE forecast for 2021 year-end is 3.4%.”

As we have explained many times, like all unbacked, irredeemable fiat currencies, the US dollar is a confidence game.  When confidence begins to fail, the currency loses value, slowly at first and then accelerating.

Confidence in the Fed’s policies is cracking like thin ice on a pond.  It is losing confidence not simply domestically among members of the political classes and the public, but internationally, too.

Confidence is won by performance, honesty, and reliability.  For thousands of years and around the globe, no monetary unit has inspired more confidence than gold.  Unlike paper money, real gold is not corrupted by governments, central bankers, or politicians.

No wonder that when confidence in the paper money begins to crack, gold represents the best possible alternative for wealth protection and profit.