I’m confident that the Fed has to act soon to relieve rising inflation, but their movement could spark the next big market crash. So why am I okay with that? Because I’m prepared for what’s coming…
The thinking of the Federal Reserve is really difficult to understand sometimes.
They’ve talked about inflation for months now, originally trying to pass it off as simply “transitory.” Fleeting. Passing. Etc.
If you were with me then, reading these newsletters, you know I called that out as B.S. from the very beginning.
See, there are massive forces at work behind inflation right now, including supply chain bottlenecks nobody can control, labor shortages around the world, and government spending out the wazoo.
It’s no wonder that the value of a dollar is shrinking!
But now, we’re seeing just how severely it’s shrinking, as, over the last few weeks, we’ve seen a 6.7% CPI and a 9.6% PPI.
That means prices are rising too far, too fast, and consumers are getting squeezed.
And what’s the Fed doing about it?
Biding their time…
This quote sums it up well:
“For months on end they insisted that inflation was transitory, then as inflation kept surprising them to the upside they finally retired it and yesterday Powell said that now risk is that inflation is becoming persistent. The policy response to 6.7% CPI and 9.6% PPI? Absolutely nothing in the here and now. In December they are continuing asset purchases and it’s not until January that they will accelerate taper which means they will continue to expand the balance sheet. In addition they will continue to run full negative real rates even with 3 supposed rate hikes next year.”
In other words, the Fed is now openly acknowledging that there’s a problem, and yet they are still refusing to address it in any way.
The problem is that the Federal Reserve is a political animal. They claim to be nonpartisan, but they aren’t.
Washington politicians always want lower interest rates, especially heading into an interest year, and the Fed is dragging its feet to try and help their buddies in Congress and the White House.
But it’s going too far and real people are getting run over by their indecision.
If you’ve watched my classes recently, though, you might be thinking, “wait, but you think a crash might happen if the Fed hikes interest rates, so why are you so eager to see it happen?”
Because raising interest rates and crashing the markets is the better of two unpalatable decisions.
And as Warren Buffett has said on particularly bad days for the market, “I didn’t lose a dime because I didn’t sell anything.”
If the market crashes, a lot of American retirement accounts will take a massive hit, and that stinks. But, over time, a lot of that value will return.
In the meantime, though, there are families all over the country who simply can’t afford to pay thousands more dollars a year to meet their basic living expenses.
Those are the people I think we need to watch out for right now.
And that’s why the Fed needs to act, sooner than later, to try and get this inflation under control.
Jeffry Turnmire and InvestPub do not provide investment advice. Trading involves a substantial risk of loss and is not suitable for all investors. Many traders fail and you should not trade with money you cannot afford to lose. If you need personal financial advice, consult a financial advisor.
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