Meanwhile, there’s the real, hard evidence of actual inflationary pressures, that you’d think would convince Powell and his team of Fed governors of the need to focus on inflation. At present, the U.S. economy is facing higher food, higher energy, and higher housing prices. And the prices of most commodities are going up, up, and away... The realist in all of us should remember that the Fed has failed, over and over again, to get this right. Instead, it has a tendency to both under and overreact. Food prices are up 2.2% year over year and are expected to move higher. General Mills (GIS), the company that produces giant food brands like Betty Crocker and Cheerios, recently sounded the alarm, telling investors it anticipates inflation of roughly 7% this fiscal year... along with higher input costs including labor and logistics. Consumer prices on most goods are up 5% annually, according to the most recent read on the Consumer Price Index, and still climbing. (The read on the “core rate”, which strips out food and energy is up 3.8%, its sharpest increase in nearly three decades.) Oil, as I predicted in January, is at $75 per barrel and expected to move higher. And this has an effect on prices for everything else. The price of coffee beans, for example, recently escalated because of the shipping costs associated with transporting the beans
So, why is the Fed still printing money via bond-repurchasing programs and low rates? It’s a fair question and one Powell can’t quite answer... other than to tell us that we need to look at new metrics like employment to gauge the health of the economy. Let’s take him at his word. Let’s assume he’s right and employment is the only way to truly measure whether the U.S. economy is “back in action.” If so, then, even by those metrics... the economy is looking quite healthy. Last month, we added 850,000 jobs to the American economy and the unemployment rate came in at a healthy 5.9%. Keep in mind that this is despite the lengths to which the administration is going to effectively ensure that the those who are unemployed need not go back to work until at least September, when the benefits are set to expire. As I’ve always said, Americans are realists, who, when presented with the opportunity to make as much money, or almost as much money, staying home as they would be going to work, well, naturally, they’ll stay home... I mean, can you blame them? A check from Uncle Joe sure beats washing dishes... and in many cases, it’s that simple a decision. As such, the growth of 850,000 jobs in the latest month should be the kind of improvement needed to encourage the Fed to get back into the tightening game before it’s too late. Because, when it’s too late... well, it’s just too late. We saw that with Greenspan – and I don’t know about you, but I’m not in the mood for a repeat of 2008.
American Consequences
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