The Game Has Changed

The comments below are an edited and abridged synopsis of an article by SchiffGold

Following the recent Federal Reserve meeting and the messaging from Fed Chair Jay Powell, Peter Schiff said investors need to understand that the game has changed. Inflation isn’t going away. Raising rates may cause some pain, but the American consumer would feel more pain if the Fed failed to act and let inflation run out of control.

The Game Has Changed - BullionBuzz - Nick's Top Six
A collection of newspaper cuttings with headlines all dealing with inflation. Shot with Canon EOS 1Ds Mark III.

Powell expressed concern that rising wages in a tight labour market may keep pushing inflation higher, but Schiff said that rising wages don’t cause inflation.

The Fed has been in a months-long firefight against inflation, but there is no improvement; it conceded this in a paper published by the Kansas City Federal Reserve Bank. In a nutshell, the authors argue that the Fed can’t control inflation alone. US government fiscal policy contributes to inflationary pressure and makes it impossible for the Fed to do its job.

Schiff said there is still stimulative fiscal policy coming out of Washington DC.

The money supply is coming down, however, and there are signs of an economic slowdown. Price inflation seems to be easing in some sectors. The Fed may back off from where its rate increases are projected to end.

Investors need to recognize that the game has changed and that the dollar’s decline is going to accelerate when the Fed stops raising rates, because the economy is weak and the Fed has more to worry about than inflation.

Powell did say that the Fed will begin to hike at a slower pace in order to ‘feel its way’ forward. Powell may think he has moved too far, too fast, and there may be a mistake out there waiting to happen.

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