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CPI Numbers Show Inflation Already Beyond Fed’s Benchmark

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In Peter Schiff’s latest podcast, Peter discussed the Consumer Price Index and retail sales reports released last week. Janet Yellen provided the data in a report to Congress. The chairwoman’s testimony brought on a new wave of optimism in the markets that interest rate hikes would be coming sooner than last year’s cycle of promise-then-disappoint.

During her testimony to congress, Yellen continued to outline the Fed’s mandate to keep unemployment low and interest rates at a neutral position. According to the CPI report, the Fed’s target rate of 2% has not only been achieved but exceeded.

The rise in the cost of consumer goods (including energy) increased 0.6%, which is double the 0.3% estimated. Core inflation (excluding energy) was also up 0.3%. Another more important number was the year-over-year CPI, which has increased 2.5% (core change of 2.3%).

As Peter points out, we’re already at the Fed’s 2% goal for inflation, but the market’s irrational response is puzzling. The market reacted to the news of higher inflation and rising interest rates by selling off the dollar and investing in gold, an atypical response, considering higher rates are generally more bullish for the dollar and bearish for gold.

Peter explained the reaction is coming from investors finally calling the Fed’s bluff and realizing that rate hikes won’t be enough to offset the devaluation of the dollar from runaway inflation. What’s more, Yellen really has no intention of raising rates because she and the Fed members also know it’s a losing battle. The Fed can’t raise them enough to make a difference because it would throw the economy into a recession, yet they can’t raise them enough to effectively combat inflation. The Fed’s own misguided monetary policy has made them powerless to clean up their mess.

The final word analysis is that rising prices will continue to weaken the dollar despite higher interest rates, which will ultimately be bullish for gold. Take advantage of the Fed’s mistakes. The purchasing power of the money in your wallet is continuing to weaken. Protect your wealth by buying gold and silver.

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