Does It Mean They're Really Taking Inflation Seriously?

It looks like the Fed is really taking inflation seriously. If you caught Powell on Wednesday, at least that's what he seemed to be saying. "Seemed to" because the Fed typically speaks in strange ways that can cause you to say "Huh?".

So assuming we got the message, and that the messenger was telling us the truth, the Fed keeps raising rates until...well, they say until inflation responds by heading back to their famous "2%" target...or something like that.

Now here's an interesting twist:

The stock market jumped higher, yields on long treasuries dropped - for a brief spell, as Powell read his statement. Then came Q&A. At which point, Powell reinterpreted what he read and dashed any "pivot" hopes. So the stock market collapsed and treasury yields ended up for the day.

It was the typical "drama queen" show that Fed announcements have become (or maybe have been for years now?). If I weren't in the business, I'd keep the Fed on mute most of the time, along with the financial media (which I actually do pretty much keep on mute). It's just not worth the time. I could be reading some of the books I've been working through. They're at least worth the time.

Speaking of time, The Price of Time, author Edward Chancellor, would be well worth your time. You'll get what's really going on here. When you get the clear picture portrayed by Mr. Chancellor, you may understand why we suggested it's a good time to "look forward" rather than get caught up in the weeds and sand traps laid out by so much of the financial services industry.

Chancellor's research and analysis helps us see that the pattern in which we're stuck now isn't unique to our time. The forced manipulating, especially lowering of interest rates can be found going all the way back to the Babylonians - the earliest records we have. And that manipulation benefits a minority of, typically, powerful elites, to the detriment of the rest of us. Indeed, the negative repercussions of keeping interest rates artificially low are inevitable. And that's where we are now - in the inevitable.

When we consider the statements made by the Fed, we'd be hard-pressed to hear a whisper about how years - and we can't emphasize that word enough - of suppressed interest rates have led us to where we currently sit. And when we combine those years of interest rate suppression with unprecedented creation of money for that same Fed - numbers that are, to put in mildly, astounding - it's frankly surprising that markets have reacted in such a relatively mild and ordered fashion. It's surprising too that our economy - while arguable already in recession - has held up as well as it has...so far.

The point of all this is not to get us all worked up. Heck, that's the point of putting the Fed on mute and avoiding financial media - as long as you understand our current dilemma. 

And, make not mistake, we're not suggesting you stick your head in the sand. It's just that if you get a basic understanding of how things have been set up by Fed actions (combined with government fiscal policies that have allowed the massive run-up of deficits and national debt), why keep yourself in the line of fire of the drama queen productions from the Fed and financial media? All you'll get is a lot of emotional jerking around, first up, then down, then up, then down...and on and on? Well, you get the point I hope.

But back to wondering whether the Fed is really taking inflation seriously? Well, so far, you could conclude that, in one sense, they are. They are continuing to raise rates. And there are indications that they've slowed, perhaps ended quantitative easing, maybe even reversed it, at least in some small way. 

As for the raising of rates, the thing is, unless they raise rates 3 percentage points or more above inflation, they won't be able to really stymie inflation. And they'll need to do this along with serious tightening of credit - something that may be in the offing. Maybe. There's still not enough evidence that's happening with any conviction. 

Sorry for the hemming and hawing here, but that's not coming from us; it's just a read on what the Fed is actually doing.

One last point: Last time we suggested it would be wise to begin to look forward, somewhere beyond the end of our noses. In that light, if the Fed is really not doing enough to pull the rug out from under inflation, we need to start looking for not months more, but years more of inflation. And that would put us in the same league with the later 1960s through the early 1980s. If that's going to be the case, then the way we project and plan needs to change, and so so quickly.

More on looking forward next time...