Topic: The Fed is talking about letting the inflation rate rise above its 2% target. (Read 317 times)

Inflation of 2% is something I would jump on if given the opportunity considering that above 11% that we are battling with over here. Economy differs though and the real impact of the increment should not be on the basis of statistics or the basis of graphs plotting but rather how it affects the common man on the street trying so hard to make ends meet or the guys finishing school and trying to get a job but the economy is not providing one for them and that is the real struggle.

You can find The full text  it here:

Regarding employment
 
Regarding inflation:

Of course they are not going to tie their hands with a formula while the want flexibility to keep pumping the asset bubble up.

What did he say exactly? It's a 3.5 hour video. I don't think "moderately" above 2% target, which is what I am seeing quoted, is intended to mean 4%.

From the perspective of an unskilled worker, which is the greater evil, 3% inflation or being unable to find a job?

Rock and a hard place. I don't envy Powell's position. Keeping the bond, equities, and housing markets artificially propped up, keeping the bottom from falling out of DXY, and actually addressing the systemic needs of the labor market? No easy feat.....

While you are correct when you say that this is going to take a lot of time in order to be reflected on the prices of goods and services the reason the United States has not an inflation out of control has to do with the dollar being the reserve currency of the world, literally all countries of the world combined have trillions dollars underground not using them, if at some point the market loses the faith in the US dollar you can be sure that they will begin to spend those reserves creating rampant inflation.

Just in case you want to follow Jerome Powell sending USD full brr and full inflation:
https://www.youtube.com/watch?v=Eig-NOwTpbo


ENDED NOW.
First reaction. They are crazy.

They are focusing on unemployment.
They used to focus on the headline number of employment, easing rates when number of employment deviated from "his maximum level" or raising where employment were running toward full employment.
They said they now realise the headline hides very different situation where skilled, more productive workforce is at full employment, while lower wage, unskilled workers have been consistently struggling to find an employment. Even the labour force participation is now running very low, meaning that a lot of unskilled worked just stopped actively seeking for work.

Now  they plan to be ready to let inflation running high to "help" lower wages labour force to find a job: not raising interest rates you allow firms to offer constant wages until full employment is attained.
This is nonsense, the low income workers will get slaughtered by inflation in the meantime. Inflation is an highly regressive "hidden tax" : poor people are going to be hit strongly, as a 4% increase in diaries expenses is going to hit them harder than upper classes being hit 4% on home theatre expenses.

IF you don't believe me, believe on the collective intelligence of markets: EURUSD, XAU and BTC all going the same direction.

While the mechanics of this example are correct, you have to realize that the economy is so much more complex and the absolute numbers are so large that a change like this would take an exceedingly long time to show in prices, and the bet is that the economy can recover and grow to absorb most of the new money put into circulation before the effects of rampant inflation are felt.  For the most part, this has been a pretty good trade off.  The US does not have out of control inflation and has done a good job measuring the risk of inflation against all the new money put into the economy.

Not only that, governments get to enjoy to spend that money before inflation even makes its mark in the market which gives them a huge advantage over any other player in the market, think about it suppose that the whole money supply around the world is just 100 dollars, so all products and services of the world are worth those very same 100 dollars, but then the government prints 3 dollars this means they get to spend those 3 dollars before the market is aware of their existence and as such they get goods and services worth that money, but once those 3 dollars enter the market now all products and services around the world have to be divided by a money supply of 103 dollars effectively lowering your purchasing power.

They were still calling it a "recovery" 10 years after the last crash from the housing crisis and were worried about jeopardizing the "recovery" when we were posting the best employment numbers, stock market numbers and GDP on record.  The framing of it as a "recovery" long after it was recovered and was just a flat out booming economy is deceptive and designed to never have to raise interest rates, because the billionaire class in this country is addicted to cheap money and god forbid the Fed ever employ a sound monetary policy for fear of pissing off their republican backers.

After a while, also maistream newslet get coverage of the issue.
Nothing new, only a good wrap up:

Jerome Powell’s Coming Inflation Speech May Weigh On Dollar and Boost Bitcoin: Analysts



Dubious correlation studies on the last bullet points.
Powell has the gargantuan task of not letting the curve go negative, or inverted, thus preserving the huge money manager hedge fund industry, while keeping the long end of the curve not too steep to preserve the stock market rally, that it is not going away before elections, and third to invert the money velocity trend, now at historical minimum.
Good luck to him (/sarcasm) .
Bitcoin fixes that.

Even if CPI is a bad indicator for the cost of living (view the graph in my post earlier in this thread), people greatly underestimate the power of compounding of tille numbers on long enough period of time.
Do you know how much CPI rose in the last 20 years? 40%.
This means that of you don't earn 40% more than you were earning in the year 2000, you actually lost purchasing power, or if your investment portfolio hasn't grown  as such, you lost wealth. Same thing goes for your long term investment, real estate etc.

A lot of people don't understand this.

No, the inflation rate only tells you how fast the price of consumer goods and services are rising.

In 1967, an ounce of gold was worth $35.50. Today, that same ounce of gold is worth $1,940. The price has risen by ~55x against the dollar.

Meanwhile, according to the BLS's handy CPI calculator, inflation has only gone up ~8x over the same period of time. https://www.bls.gov/data/inflation_calculator.htm

Those aren't exactly the same.

Focusing solely on the inflation rate is a good way to deceive people about how quickly their money is being devalued.

I think it is also normal. This will only happen this year, hopefully vaccines will be available soon so the economy does not suffer any more. next year, if the epidemic is under control, the inflation rate will still return to normal, don't worry. If Mr. Trump still wins the next presidential election, the economy will surely grow stronger. he is helping Americans get all they have given away and America will be great again.

I think this is good news for crypto currencies. The higher the inflation will get the more people we will see trying to find different currencies to USD. Bitcoins and others can only profit from this.  After the last crisis the inflation was fairly low we can still see some higher prices in the future without inflation getting out of control. But with 3% and interest rates on bank savings near 0% we should definitely move more into cryptos.

"Letting" is a scary thing, that is why I like bitcoin so much, there is a thing called FED in USA that decides if inflation should go above 2% or not, they have the power to make it drop lower or make it go above, that is a power that is uncanny, we are talking about average price of things, not everything obviously but the average going up or down, and an organization has the power to decide on that for the whole country.

I am sorry but I like bitcoin because even if it goes up or down at least it is the people with the bitcoins that decide this, it is not some centralized organization that can say bitcoin price or the block rewards or basically anything, it is untouchable, people can make the decisions if they want to but not just one group of them, it is all of them.

How the hell could more inflation solve the economic problems of the USA?
It would be nice if some banker,who is currently working at one of the Federal reserve banks tries to explain this nonsense.It is historically proven that the inflation creates more problems than solves.
Anyway,be ready for a 20K Bitcoin price after a few months.Thanks to the Federal Reserve System,not due to mass Bitcoin adoption.

I guess this is the part I don't understand then, because this is exactly what the inflation rate tells you. Inflation is calculated in the base currency and measures price increases over time, so if inflation is 2% per year the value of USD is dropping 2% per year. It doesn't matter if your net worth is in physical dollars or not, everything in the economy is denominated in dollars so no matter what medium you're keeping your wealth in, inflation affects it all the same way because you transact in dollars.  It's just that a consequence of keeping wealth in a medium that is inflation resistant (e.g., gold) makes the "value" of the asset rise in USD as inflation causes USD to lose value.  If you buy gold at $100 and then it's worth $110, did the gold gain value or did the dollar lose value relative to gold?  They're one in the same. But the inflation rate is telling you what you're losing by holding dollars instead of assets that produce income or act as an inflation hedge.

I'm talking about the distinction between dollar savings, and savings held in investment and store-of-value assets.

If you hold your savings in dollars and then after decades find that it can purchase only a small fraction of the real estate or gold that it once could, I think that's a very important measure.

In other words, CPI doesn't tell us how much you lose by keeping your savings in dollars. That's a metric everyone should be aware of.

I don't care to bicker about the definition of price inflation; we can apply another name to the metric if you like. But the phenomenon itself (money losing value vs. everything else) is exactly the same as inflation, and I think that's what gentlemand was referring to.

On the saving part, someone has already answered to you.
I think the most important part to be added to the CPI are investment goods, mainly education and health (or health insurance). Those two ballooning gosts have caused a massive disruption of the purchasing power of the American middle class.



https://kottke.org/19/02/cheap-tvs-and-exorbitant-education-modern-america-in-one-chart

An inflation index tracking savings wouldn't really be an inflation index since inflation is the rise of prices and savings has nothing to do with prices.  If the government gave everyone a million dollars and everyone put it in the bank and did nothing with it, there would be no inflation to record.  Eventually, savings make their way back into the economy, so the exclusion of savings is only temporary. When the savings start to make their way back into the economy, it will affect prices and inflation accordingly.

CPI has its purposes in this analysis since economic output is directly tied to consumer spending. How fast the prices of consumer goods and services rise tells us a lot about how far wages go in the current economy.

What it doesn't tell us about is savings. Investments like stocks, real estate, and BTC aren't tracked for inflation purposes. And that is definitely something we should be keeping track of in addition to CPI.

I'd like to see an inflation index covering investment assets, because a healthy analysis considers not just spenders, but savers as well.

At this point in time, what strategy does the feds have up on their sleeve that they haven't employed yet? Pretty sure they have tried every trick in the book to save an ailing economy, and have failed miserably within the last few years as shown by the current market trends. This time, those that suggested this play probably thought, "why not up the target inflation rate slip past 2%? What could possibly go wrong, right?"

I'm even skeptic as to whether the figures they are releasing to the public are even real.


At least for them they have safety nets and other things that could hide their failure on handling things, but I like the reference.

Everyone knows real inflation has been vastly higher for a long, long time. I have no idea why they bother claiming any figure at all. It doesn't bear any relation to the real world where it's doing real damage.

The point is the FED is probably going to change their inflation targeting from 2% (that's a level where their miserably failed, by the way) to an "average of 2%.
This means they will be happy with inflation overshooting 2% for prolonged periods of time, in order to rais the "average" inflation above 2%. This will provide even more space for bonds and stocks to surge, cancelling this "inflation scare" as temporary.
At the same time, higher inflation will help deflate the gargantuan amount of money we are putting on the market, i.e. debt piling up.

Can it work? Sure, like myself driving to Pikes Peak top drifting with a 800 hp car: I can make to the top, but it's an high risk at every turn, and only a brief moment of misjudgement can have disastrous consequences.
Don't worry, bitcoin fixes that.

Sure it will rise above 2% target with this amount of fresh printed money

I'm afraid they will not (or never) tighten the monetary policy even in the post-coronavirus era since belt-tightening is not something easy, especially if we deal with politics where the administration can get bad press from doing such activity. That said, everything will be fine if the next administration has the balls to raise interest rates, etc., or it will get spiraled out of control.

Until and unless there is actually a straight statement from the Fed we cannot decide what the Government is planning and therefore the most we can do is to consider looking at the market from different perspectives , right now what am able to see is that this article does not prove that this is what they are going for , at the same time if Inflation rises , it would only benefit the large industries , the businesses , banks , the people will be unfortunately in a big problem which might even risk management of the country as a whole.



I do believe that it could affect the population below the Poverty line , which are already being affected due to COVID-19 , since they are not even registered at the same time healthcare and such is just a dream for most.

Therefore I do believe that even 1-2% excess inflation is dangerous , not for us but for the people who are going to be affected by it drastically.

At the same time , it is natural to worry about inflation with time , since most of the times it's going to increase with time but , if the feds are trying to increase it even to a small extent I do think they should think twice about their decision or actions.

I would like to end it with a quote from the author where he very nicely explained the problems in few lines:



Plus the reason I did use the word *Government* instead of the Fed is because they are integrated very strongly with each other and most of the times their actions do benefit both parties , its like a whole lot of things that we don't know about .

From their Keynesian standpoint, it makes perfect sense. These deflationary periods obviously kick inflation well below 2%. Why worry about slightly overshooting 2% on the upside if it could mitigate the risk of cutting the recovery short?

As far as money printing goes, I'm not sure it matters much. If the economy doesn't recover to 2% inflation (or takes longer to do so than expected) they will keep running their infinite QE program anyway. Money printing is just the norm now. It's not based on the actual money supply, it's based on the state of the markets.

November is a very short time for Trump, but since Trump was tapped as President, Trump has been doing quantitive tightening with the strategy to pull the dollar outside America, so the value and interest rate of the dollar would rise, because people and countries need a lot of dollars, and the dollar will dry up in markets outside America.

This strong dollar makes the price of goods that America imports cheap. Or we can see from the side of other countries, which depend on imports but have a strong national currency, so the raw materials for production will decrease. If America is too strong to attract its dollars, America will not lose, even though the protection will increase the price of imported goods from America, but the loss will be in the exporting country because we pay extra to America. For America, because the dollar has increased in value, the purchasing power of the American people remains and inflation is not very pronounced. If the exported goods are not absorbed by the United States or the exporting country benefits from decreasing due to the tariff war, then the exporting country will also suffer losses.

This is probably not just making up for those times when the inflation was below 2%. This basis of this significant step appears to be oversimplified, seems to convey to the public that everything's pretty much under control and they are just shifting an approach or theory in the middle of a crisis, which in itself may be construed as somehow unsettling.

It makes me ask, is it really "letting the inflation rate rise above its 2% target?" Or is it that the inflation rate cannot be easily contained within that certain limit during this time of pandemic and it will probably shoot beyond that despite the efforts?

Governments like inflation, because it is good for them.

They do the most they can to generate more inflation: negative interest rates, money injection, and so on.

Governments make a lot of money from inflation, due to inflation tax.

For example, you pay capital gain tax over inflation. Your asset is 3% more valuable one year later? You will pay taxes over that 3%, even if only 1% is real valuation and 2% is just inflation.


Bitcoin is our way out of inflation taxes.

Yep lots of bills big stacks of it.

It will be really interesting to see how much they pass the 2% level by.

I'm not exactly sure what the hell the article is saying, since it sounds like a bunch of economist gobbledygook to me.  What it doesn't sound like is that the Fed has any concrete plan to raise interest rates, and if they alluded to doing this in the article I'm pretty sure it would spook the market big time.  Investors/traders/speculators have been used to cheap money for so long that they're going to have to be weaned off of it slowly, like a methadone taper for a heroin addict.

I've said it a few times in recent posts: if interest rates get raised, watch out.  That will mean less margin trading (among many other things), which will have a negative effect on stock prices--and probably gold, silver, and bitcoin as well.  Unfortunately the Fed is going to have to raise rates eventually, but whether we're expecting it or not it's still going to come as quite a shock regardless.

And yeah, OP, that money printing press just continues to work overtime with no signs of a break in the action anywhere to be seen.

https://www.bloomberg.com/opinion/articles/2020-07-17/the-fed-is-setting-the-stage-for-a-major-policy-change


"Having learned a hard lesson in the last recovery — don’t tighten monetary policy too early"

"In practice, that means the Fed will not just emphasize actual inflation over forecasted inflation, but will also attempt to push the inflate rate above its 2% target. "

basically the article says the fed has some missed time to make up for since we had a period of lower than 2% inflation, well need say for example 3% inflation to make up for that lost infation.

money printer go brrrrrrrrrrrrr