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Fed Commitment to Let Inflation Run Isn’t a Promise; It’s a Threat

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According to a recent CNBC report, the Federal Reserve is set to make a major commitment to “ramping up inflation.”

According to the report, the Fed will pivot to “average inflation targeting.” With this strategy “inflation above the central bank’s usual 2% target would be tolerated and even desired.”

Practically speaking, the Federal Reserve would not raise interest rates until both its employment and inflation targets are met, meaning the central bank would likely keep interest rates at zero for years.

The central bankers have actually been hinting at this for quite a while, using the term “symmetrical inflation target” in FOMC statements and press conferences. Peter Schiff talked about this in a podcast last December.

What that means is inflation above 2% by an equal amount that used to be below 2%. Now you actually have the Fed talking about adopting that officially into their mandate about having inflation run above 2% adjusting their target north so that the official target now is above 2%.”

The Fed is currently completing a year-long policy review and is expected to announce the results within the next few months.

During his podcast this week, Peter said you have to step back from a headline like that.

Even more inflation than we’ve got now? I mean, how can we have more? Look how much money they’re printing.”

In a nutshell, the Fed simply wants to make sure it’s absolutely clear that it isn’t even thinking about thinking about raising interest rates.  As Peter put it, one way to make sure we know that is to say, “Hey dummy, we don’t care how high inflation gets. We’re not raising rates.”

Of course, the Fed doesn’t look at the real rate of inflation. It looks at the CPI or some core index within that number. Peter said they’ll likely look at an index that will never get above 4% even if the actual inflation rate is 20 or 30%.

Because they can always focus on a subset of a subset and say, ‘Oh, we’re looking at this.'”

Even before the Fed cut rates to zero and fired up the money printing press in response to coronavirus, there were already signs that inflation was running hot. A metric calculated by the Cleveland Fed known as Median CPI showed this.

In effect, the Median CPI tracks the mid-point (median) of 45 major components of the Consumer Price Index. Median CPI was up 0.3% last January, representing an annualized rate of 3.7%. For those of you following along at home, that’s more than 2%. Even with the economic slowdown due to the pandemic, the annualized Median CPI was 2.6%.

The truth of the matter, the Federal Reserve is in a position where it has to make excuses for allowing inflation to run hot because it simply cannot raise interest rates. Even the hint of a rate hike would crash the stock market and likely take the economy down with it. You simply can’t raise rates when the entire economy is built on a giant pile of debt.

When gold pushed above $2,000 an ounce, a pundit on CNBC declared it wasn’t a big deal and predicted the yellow metal will sell off as soon as real interest rates go positive. Peter said the Fed is telling you that’s never going to happen.

They’re not going to let that happen. They’re going to make sure to keep interest rates below the level of inflation indefinitely.”

Peter said this commitment to let inflation run isn’t a promise, it’s a threat.

Saying that they’re going to commit to more inflation is a threat against the American public. It’s a threat against the American economy. They’re saying, ‘We’re going to wipe out the value of your savings. We’re going to increase the cost of living.” I mean, what a stupid policy.  If the country is in trouble because of COVID-19, the last thing that we want is higher consumer prices. After all, if we’re already getting less supply because fewer people are working and they’re not producing, then why would we want to add insult to injury? Why would we want to pour gasoline on that fire by creating even higher prices because of debasing the currency?”

Peter called the policy absurd.

But the Fed is actually about to codify this absurdity by strengthening their commitment to reckless money printing and endless inflation. And you think gold is expensive at $2,000 an ounce? No! It’s still cheap.”

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