Rick Rule: Fed Will “Chicken Out” on Inflation Fight

Well-known investment advisor Rick Rule said the Fed will chicken out on its inflation fight.

Rule runs Rule Investment Media and formerly served as the president and CEO of Sprott US Holdings Inc. In a recent interview, Rule said that the Fed could get inflation under control with significantly tighter monetary policy for a sustained period of time. But he said he doesn’t think the central bank has the wherewithal to follow through when the economy starts to crash.

I think they’ll chicken out. If we had a period of real interest rates it would certainly cure inflation, but it wouldn’t cure inflation until it did amazing damage to various balance sheets.”

Rule has warned that the Fed won’t have the fortitude to fight inflation before. In an interview with MoneyWise earlier this year, he said, “I do not believe that the broad equities market will handle multiple rate hikes.”

Inflation has run hot for months. During the June FOMC meeting, the Fed raised interest rates 75 basis points for the first time since 1994.

Rule echos what I’ve been saying for months — the Fed is engaged in a feckless inflation fight. In March, I wrote the following.

It’s also highly unlikely that the Fed will ever get to 2.5%. As you’ll recall, when the Fed started tightening in earnest after the 2008 meltdown, it barely got above 2% before the economy went wobbly. The stock market tanked in the fall of 2018 and the central bank went right back to rate cuts and QE. Today, the bubbles are even bigger. The levels of debt are even higher. How will the Fed raise rates substantially in this environment?”

Ron Paul has made similar statements, recently noting the Fed rate hikes have only raised rates to the level they were before the pandemic.

The Federal Reserve cannot increase rates to anywhere near the level they would be in a free market because doing so would increase interest payments to unsustainable levels for debt-ridden consumers, businesses, and the federal government.”

Jerome Powell continues to insist that the central bank can tame inflation while bringing the economy to a “soft landing,” but this promise seems dubious at best.

Here’s the reality — the US economy was built on easy money and debt. Taking away the easy money will pop the bubble and collapse the house of cards economy. As Rule alluded to, this needs to happen. We need a recession to cleanse all of the misallocations and distortions out of the economy. But that would mean a lot of pain. And for all of the tough talk, Rule and many others don’t think the Fed has the political will to allow the economy to crash.

During his MoneyWise interview, Rule said he doesn’t expect inflation to cool anytime soon.

I think we’ll continue to see prices going up for most of the remainder of the decade.”

Rule thinks investors should consider gold and silver because the government can’t print it out of thin air like fiat money.

I think that an investor who does not have some of his or her wealth in precious metals or precious metals equities is making an extraordinary mistake.”