By Victor Sperandeo with the Curmudgeon
Inflation and the Fed:
The Curmudgeon and I are 100% for bringing down the rate of growth of price increases to help the economy and ailing U.S. public (especially those on fixed incomes). But we believe it should be done without “assassinating the patient.”
Powell has admitted he didn’t understand inflation. Mr. Powell said in a 2021 congressional hearing, “M2… does not really have important implications. It is something we have to unlearn, I guess.” He and other central bankers must “unlearn” their disdain for monetary analysis before they make another egregious error.
As we’ve repeatedly stated and documented in previous Curmudgeon posts (many), inflation is always and everywhere a Monetary Phenomenon. The Fed finally gets that message. In the three months before June (when quantitative tightening began), allowed M2 growth to plunge to an anemic annualized growth rate of 0.1%. When broad money growth falls to near zero, nominal spending contracts and a recession begins, according to a WSJ editorial by John Greenwood and Professor Steve H. Hanke.
For sure, shortages and supply chain bottlenecks can also raise prices, but those are for specific goods or commodities, not the “general continuous” price increases the U.S. is now experiencing. As we’ve explained many times, that was caused by the Fed’s ultra-easy “free money party,” and U.S. federal government stimulus payments. Now it seems the Fed wants to overcompensate with huge rate increases while the economy is showing weakness almost everywhere.
It is extremely rare for the Fed to be raising rates, especially by 75bps per month, when the U.S. is close to or already in a recession.
Does the Powell led Fed realize that would cause a recession to deepen?
Is the picture below familiar to anyone?
I do not trust or use any data from the U.S. government, including agencies (e.g., the BLS, BEA, etc.), affiliates or even the institutions that are potentially influenced by the government’s power. Instead, I do my own deep due diligence for “investment” purposes only. That involves analysis of original source documentation with verification from credible sources.
Economists expect that the CPI for June 2022, to be released on July 13th, will hit a fresh 40+ year high of 8.8%, according to a poll conducted by Reuters. [The monthly core index is forecast to decline to 5.8% from 6.0% in May.] The CPI probably rose nearly 9% in June from a year earlier, based on the median projection of economists in a Bloomberg survey. If those forecasts are correct, count on a 75 bps Fed Funds rate hike at the FOMC meeting on July 27th.
“Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take away from them the power to create money and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money." Said to be from an informal talk at the University of Texas in the 1920s.
The statements in this communication are the opinions of its author, Victor Sperandeo, and are not to be relied upon by anyone as the basis for an investment decision. Any investments made by a party in reliance thereon are made at such party’s sole risk. No guarantee of any kind is implied or possible where opinions as to past or future market conditions/events are provided. Past performance is not necessarily indicative of future results.