Upset about the price of your food, rent and health care? Too bad.
This of course is the attitude of our fearless leaders at the Fed and the politicians in Washington. The last time core inflation was this high, the US 10yr yield was ~8% and short term interest rates were 5.5% (see attached chart). The policy of allowing inflation to run hot is called "Financial Repression" by many market analysts. Believe it or not, it wasn't until the pandemic unleashed massive stimulus spending that headline inflation actually responded.
Today's speech by Fed Chairman Powell focused on the weak state of unemployment, implying that Fed stimulus (ie Financial Repression) will continue for now. Inflation will be allowed to run hot to achieve "policy" goals and the Fed mandate to maintain stable prices (low inflation) will be ignored.
This is of course good news for the wealthy who invest in stocks and bonds. However, eventually the party will end when the Fed raises interest rates, but for now the music is blaring. Markets will love this speech.
For those living on a budget, the message from the Fed is this: TOUGH. The beatings will continue until moral improves.
Robert Lloyd, CFA®
Chief Investment Officer
Lloyds Intrepid Wealth Management
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