The Fed Just Keeps Getting More and More Dovish

Is Jerome Powell the most dovish Fed chair yet?

Peter Schiff said he wasn’t when he first took the position and was raising interest rates. But he is now. The minutes from the January FOMC meeting released last week bear this out.

“We’re all doves now. That is the problem, the Fed gets progressively more dovish,” Peter said in a recent podcast.

An economy built on a foundation of debt needs more and more monetary accommodation to keep it going.

Whatever preconceived notions Powell had when he first took the job, he’s now been faced with reality. And the reality is it’s going to hit the fan unless you keep printing money. And that’s exactly what they’re going to do.”

That’s exactly what the January minutes revealed. It’s clear the central bankers think the economy is going to take longer to recover than many expect, unemployment remains elevated, stimulus must continue, there is no plan to raise interest rates or shrink the balance sheet. The FOMC also indicated that it would not make any big policy shifts without first signaling it to the markets. Peter said they essentially gave the green light to keep the pedal to the metal.

Don’t worry about anything in the road that’s going to blindside you. You’ve got a clear path to gamble, to speculate, to spend, to do whatever you want, because we are not going to do anything to upset this apple cart or to rain on your parade.”

The minutes also affirmed that the Fed is not worried about rising prices and inflation. In fact, the FOMC discussed running what amounts to a PR campaign to sell higher prices to the American public. As a Reuters report put it, “Federal Reserve officials last month debated how to lay the groundwork for the public to accept higher inflation.”

With a jump in some prices expected this spring, ‘many participants stressed the importance of distinguishing between such one-time changes in relative prices and changes in the underlying trend for inflation.’ … ‘A number of participants’ said they saw such price increases on the horizon for goods ‘whose production has been subject to supply chain constraints, or soon could be; others anticipated that a possibly abrupt return to normal levels of activity could result in one-time increases in certain prices,’ the minutes stated as Fed officials wrestled with how to prepare for a post-pandemic reopening of the economy.”

Translating this out of Fed-speak, the FOMC is telling us the central bank isn’t going to do squat about inflation. In fact, they’re going to pretend it isn’t inflation. It’s just rising prices due to pent-up demand. If you ask me, this is a distinction without a difference.

Peter said there’s another problem with this storyline. There isn’t that much pent-up demand.

Consumers kept on spending even though they were unemployed because they had a lot of money. I mean, there is pent-up demand for certain things — maybe travel, taking a cruise, going out into a bar — so there are some sectors of the economy where there’s obviously some demand that’s been pent up. But during the pandemic, Americans simply shifted their spending. Instead of spending their money on those things, they spent it on something else. It’s not like all that demand has been held off. It’s just been redirected someplace else.”

Regardless, the Fed is clearly telling us that it’s not going to worry about rising prices. As Peter put it, they don’t care. They’re banking on price increases being transitory.

So, what they’re telling the market is don’t even pay attention to these PPI numbers. Don’t pay attention to the CPI numbers. We don’t care. Don’t pay attention to what you’re seeing in the oil market, or in the lumber market, or in the copper market, or in the soybean market. We don’t care. All of this is temporary noise. It’s all going to come out in the wash.”

But how do they know? How do they know that big price increases aren’t the beginning of an even bigger trend?

They don’t. But you know what? They have no choice but to pretend that’s the case because the last thing they want to do is acknowledge that there’s an inflation threat because the real last thing they want to do is do anything about the inflation threat. So, they can’t admit that there’s a monster that they know they can’t vanquish, so they have to pretend it’s not there.”

That raises another question: when will the markets finally figure this out? When will people stop selling gold and silver and realize that rising inflation is not a one-time threat that the Fed will stomp out by raising rates and tightening monetary policy?

They are going to do nothing. The dollar is going to collapse, which is the mother of all tailwinds for gold. And so, at some point, it’s going to happen. But in the meantime, they’re simply creating more buying opportunities for people who have been really slow to pull the trigger on getting their precious metals, getting their mining stocks.”