Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

The Numbers Don’t Lie; The Fed Won’t Win This Inflation Fight

  by    0   4

The central bankers at the Federal Reserve continue to talk tough about fighting inflation. But is it a fight they can win?

The numbers say no.

After the CPI data cooled a bit in July, many observers expected the Fed to declare victory and begin pivoting away from tightening monetary policy. Instead, the central bankers doubled down on the tough talk. Minneapolis Federal Reserve Bank President Neel Kashkari said the Fed remains “far, far away from declaring victory” on inflation. He went on to say he hasn’t seen anything that changes the trajectory of the Fed’s inflation fight. Kaskari remained adamant that the central bank needs raise rates to 3.9% by the end of the year and to 4.4% by the end of 2023. He even insisted he won’t be deterred by a recession.

The markets seem to have faith in the Fed’s ability to bring inflation down to 2% and keep it there for most of the next 30 years. Peter Schiff said they are “living in fantasy land.”

There is no way the Fed is going to even come close to achieving that for 30 years. They’re not even going to achieve it for three years. Yet, investors are still operating under the delusion that the Federal Reserve can do what it claims it’s going to do.

Peter is right.

For all the tough talk about stopping inflation, the Fed’s plan isn’t enough. Pushing rates to 3 or 4 percent won’t tame 8.5% CPI.

If you look at all of the Fed tightening cycles since 1973, the central bank has never stopped tightening before the Fed funds rate was higher than the CPI.

It’s clear from the chart that the Fed has a lot of tightening to do before it brings the real rate positive. It’s also clear that 3 or 4 percent isn’t going to get the job done.

Analyzing interest rates based on the Taylor Rule leads us to the same conclusion.

Economist John Taylor came up with a formula that links the Federal Reserve’s benchmark interest rate to levels of inflation and economic growth. Based on the Taylor Rule, the Fed fund rate needs to be 9.69% assuming 2% real neutral rates.

Given the history and the model, it is difficult to fathom how exactly the Federal Reserve is going to tame inflation over the long term.

Keep in mind that the CPI is actually higher than the government numbers suggest. If we use the CPI formula from the 1970s, rates would need to be over 17% in order to slay inflation.

And while the 3 or 4 percent interest rate won’t stop the inflation freight train, it will pop the bubble economy that was built on easy money and debt. In fact, we’re already in a recession despite mainstream pleading to the contrary. This is why Peter Schiff says we are about to experience the worst of both worlds – high inflation and a recession.

I’m not going to give credit to the Federal Reserve for trying to put out a fire that it lit. And by the way, they’re not even putting enough water on it to put it out. The Fed should have raised interest rates a lot more than it already has. And it should be raising them a lot more. It’s gone much too slow. And not because the economy can handle it. It can’t. We’re already in a recession. They just want to ignore that. The recession is going to get worse if the Fed continues to raise interest rates. But it shouldn’t stop just because it’s going to put the economy into a depression or create a financial crisis. It has to do that. The only way to fight inflation is to remove all the inflation from the economy that the Fed put in there. So, they have to shrink their balance sheet. They have to let interest rates go way up. They have to force the government to slash government spending. But unfortunately, none of that is going to happen. This recession is going to get much worse, and Powell is going to pivot in defeat. He’s going to focus his attention on trying to stimulate the economy and let inflation run out of control.”

Download SchiffGold's Gold vs GLD EFT's Free Guide

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Is the Fed Easing Up on the Inflation Fight?

Is the Federal Reserve easing off the accelerator on its inflation fight? The answer depends on whether you believe your eyes or your ears.

READ MORE →

Fed Officials Claim They Can Shrink the Balance Sheet a Lot More; They Can’t

Federal Reserve officials insist they can still shrink the balance sheet significantly more than they already have. You can file this assertion under the same category as “inflation is transitory,” and “the problems in the subprime mortgage market are contained.” In other words, Fed officials have detached from reality — again.

READ MORE →

The Trillion-Dollar Coin: A Dumb Idea That Won’t Go Away

Policy wonks and government people come up with some really dumb ideas. And a lot of those dumb ideas just won’t go away. Now that we’re in the early stages of the fake debt ceiling fight, a really dumb idea has been resurrected from the dead – the trillion-dollar coin.

READ MORE →

Here We Go Again! It’s Time for Another Debt Ceiling Fight

Here we go again. The clock is ticking down to another US debt ceiling fight. According to Treasury Secretary Janet Yellen, the US government will officially bump up against the debt ceiling Thursday (Jan. 19).

READ MORE →

Is “Cooling” CPI Setting the Stage for More Inflation?

Based on the headline numbers, price inflation cooled again in December, boosting market optimism that the Federal Reserve will continue to ease off the pedal on its monetary tightening. But this could be setting the stage for more price inflation down the road. And a deeper look at the data reveals that a lot of […]

READ MORE →

About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now