This time Peter tackles Jerome Powell’s speech from Wednesday, in which he announced that the Fed is holding the federal funds rate between 5.25 and 5.5%. He also briefly discusses Bitcoin’s pullback and the media’s lies about Donald Trump.
On Powell’s announcement, several commodities surged in price, with silver, gold, and copper performing especially well. Peter sees this as a repudiation of Powell’s messaging:
“I think we’re on the verge of the biggest bull market in commodities since the 1970s. Of course, this flies in the face of Powell claiming that inflation is going to go back down to two percent. There’s no chance that inflation is going to go back down to two percent! All the data shows that inflation is on the way up. Plus, if you understand what inflation is, it has nowhere to go but up.”
A hotter-than-expected Producer Price Index (PPI) report last week also contradicts Powell, with the PPI increasing from last month by more than twice the most conservative estimates. The PPI, in addition to a recently announced 13% federal deficit increase, does not bode well for the economy:
“This is why we have inflation. It’s driving prices higher. All this money is being spent. How can it not bid up prices? This is why the Fed is not only going to taper the QT [quantitative tightening] program but go back to quantitative easing because government spending is going ballistic. And all of it is stoking the fires for inflation. … There’s no downward pressure from five and a quarter, five and a half percent interest rates. Those rates are still too low.”
Peter expects rate cuts in the future. Every political force incentivizes the Fed to cut rates soon:
“The Fed is cutting rates come hell or high water. It doesn’t matter what the data is. The Fed is going to cut rates because the country is broke. They’re not cutting rates because they won the war against inflation: they lost that war. They’re cutting rates because they have to avoid a financial crisis— a banking crisis. They want to try to reelect Joe Biden. They want to try to save the government from having to default and cut social security and cut Medicare, and so everything’s going to be cut through inflation.”
Powell’s dovish remarks are a textbook case of the Fed’s inability to unwind its policies. Once it starts manipulating the dollar, it can’t go back:
“Bernanke— in 2009, when the Fed just started to increase the balance sheet— said that, ‘After the emergency, we’re going to bring it right back down to where we started. We’re not going to keep any of the bonds that we bought, because we’re not a banana republic. We don’t monetize government debt.’ Well, now you have Jerome Powell saying, ‘We are a banana republic. We do monetize debt because we want to maintain an ample balance sheet.’”
The one thing Powell got right is that rising wages are a symptom of inflation, not its cause:
“If wages are going up, that’s a sign that there’s still an inflation problem. … It’s like when you take your temperature with a thermometer and you know you’re sick. The thermometer is not making you sick. You’re sick because there’s something wrong with you. The thermometer is simply allowing you to confirm that you’re sick.”
The Fed’s inability to handle inflation has sentenced the economy to a grim fate:
“We haven’t experienced anything like that since the 1970s. The difference is we’re in much worse shape economically than we were in the 1970s, and we don’t have the ability to put out this fire. We’re not going to get another Ronald Reagan. We’re not going to get another Paul Volker, and even if they were there, they couldn’t do what they did back then because of the financial position, the weak position that America now occupies that it didn’t occupy back in 1980. So it’s a whole different ball game, and it’s going to have a very different ending.”
With hopes of rate cuts sparked by this week’s report, more cheap credit will only add fuel to the raging flames of inflation.