Inflation Report Renounces Powell’s “Transience” Fable
The great thing about hiring a professional guide on a big mountain expedition is the guide goes with you, and is even tied to the same rope. Subterfuge is of no use to the mountain guide, as their own life is dependent on the counsel they give. Central bankers are none the sort, yet have garnered sufficient investor confidence to in many instances replace actionable policy with mere words, words the market refers to as ‘guidance’, guidance the bankers know does not represent a dispensation of truth, but a ploy aimed at impacting consumer and investor behavior. How did Friday’s inflation report reveal exactly this of Jerome Powell’s recent “transient inflation” myth, how will the development impact your family, and what should you do about it?
Fed Chair Powell is of the same mold as former Chair Ben Bernanke, who on the eve of The Great Recession told Congress he saw “no recession coming”,¹ and Chair Janet Yellen, who in 2017, when a higher percentage of U.S. companies were considered to be ‘Zombie Corporations’ than at any time in U.S. history, said she did not believe there would be another financial crisis in her lifetime.² Powell followed the dissimulation of his predecessors in 2021 by declaring without basis and for many months that inflation was “transitory”, only to be forced to shamefully retire the term in December by resiliently high levels of price increases.³ The 10 Year Treasury yield, considered by many astute investors to be the best economic indicator in the world today, has broken above the 35 year downtrend line,⁴ and is warning high price inflation is entrenched.
Friday’s CPI release for May shocked Wall Street, now in a major selloff, by beating expectations to the upside with yet another “highest in 40 years” release. Though declining consumer discretionary spending is causing price inflation in that arena to moderate, it offers consumers and investors little comfort since price increases in the food, energy, and housing sectors continue to run hot. This means more of everyone’s income will be absorbed by these universally needed items, leaving less disposable income for everything else.
Critical solutions include strict budgeting, gaining skills to maintain your own home and property, planning gas-use carefully, enjoying life’s free pleasures, being part of a group of independent and like-minded people, growing a vegetable garden, and working both smart and hard. If there is a blessing in this rampant price inflation, it’s that it is presently driven by supply constraints and war, and not by a widespread loss of confidence in our currency, a far more destructive phenomenon.
Think about it, Shaun.
“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” ~John Maynard Keynes
1 NPR, “Bernanke Sees No Recession, but Big Challenge”, February 27, 2008 https://www.npr.org/2008/02/27/74992288/bernanke-sees-no-recession-but-big-challenge#:~:text=Bernanke%20Sees%20No%20Recession%2C%20but%20Big%20Challenge%20Visiting%20Congress%20to,keeping%20a%20lid%20on%20inflation
2 Reuters, “Fed's Yellen expects no new financial crisis in 'our lifetimes”, June 27, 2017 https://www.reuters.com/article/us-usa-fed-yellen/feds-yellen-expects-no-new-financial-crisis-in-our-lifetimes-idUSKBN19I2I5
3 Bloomberg, “Powell’s ‘Transitory’ Retreat is Just the Beginning”, December 21, 2021 https://www.bloomberg.com/opinion/articles/2021-12-01/powell-s-transitory-mistake-on-inflation-risks-destabilizing-markets
4 US Department of the Treasury, Daily Treasury Par Yield Curve Rates, June 13, 2022 https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202206
The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.
https://www.fivestarprofessional.com/spotlights/90982
Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.