Remember how the Fed claimed it was embarking on a tightening cycle?
Well, the Fed failed to hike interest rates in January, March AND April despite the “data” hitting levels at which the Fed said it would hike. There is now talk of a potential hike in June… but the Fed futures indicate less than half of traders expect another hike before February 2017.
All talk of a tightening cycle was just another “point” in the narrative of recovery. The fact is that there has been no significant recovery for the US economy. Sure things look great if you ignore glaringly horrific data points like the employment/ population ratio, and other unmassaged data points.
The reality is that since 2012, the US economy has flat-lined.
And this is despite the Federal Reserve pumping TRILLIONS of Dollars and maintaining ZIRP.
Meanwhile, the US’s Debt to GDP ratio has risen over 100%. The US, for all intensive purposes, is beginning to look like some of the bankrupt EU nations that required bailouts.
There are only two ways to deal with this:
1) Inflation
2) Restructuring
In the last few months, several Fed officials, most notably Fed Vice-Chair Stanley Fischer stated not only that inflation was appearing in the US but that this is something the Fed “would like to happen.”
In separate prepared remarks in Washington, neither Fed Vice Chairman Stanley Fischer nor Gov. Lael Brainard made direct reference to next week’s meeting of the Federal Open Market Committee. But Brainard argued for patience in rate increases amid possible risks that inflation and U.S. economic activity will fall.
“Tighter financial conditions and softer inflation expectations may pose risks to the downside for inflation and domestic activity. From a risk management perspective, this argues for patience as the outlook becomes clearer,” Brainard said.
Source: CNBC
AND…
Inflation is showing signs it could accelerate in the United States, a top Federal Reserve policymaker said in comments that back the view that the central bank will hike interest rates again this year.
“We may well at present be seeing the first stirrings of an increase in the inflation rate,” Fed Vice Chairman Stanley Fischer said on Monday in prepared remarks, adding that faster inflation was “something that we would like to happen.”
Source: Reuters
Now consider the latest from Chicago Fed President Charles Evans:
A top Federal Reserve official said Monday that the U.S. central bank should consider allowing inflation to temporarily rise above its 2% annual target…
“Overshooting a little bit just to make sure you get to 2% strikes me as quite sensible,” Mr. Evans said during a panel discussion at CityWeek, a London financial-services conference.
He argued that a prolonged spell of too-low inflation carries greater risks and a brief overshoot may help anchor expectations of future inflation close to the Fed’s 2% goal.
Source: WSJ
The greater risk of low inflation is DEBT DEFLATION or the bond bubble bursting. As we noted before, the US sports a Debt to GDP ration of over 100%. Debt Servicing is already one of the largest expenses for the US budget at a time when rates are effectively at ZERO.
The Fed is opting for inflation. It is willfully letting the inflation genie is out of the bottle. Core inflation is already moving higher at a time when prices of most basic goods are at 19-year lows. Any move higher in Oil and other commodities will only PUSH core inflation higher.
The Fed is cornered. Inflation is back. And Gold and Gold-related investments will be exploding higher in the coming weeks.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research