Hawaii Six O - Gary Wagner
Chairman Powell admits, “Inflation is running very far above target”
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
While it seemed obvious to most economic analysts as well as everyday citizens that inflationary pressures have been running rampant, out-of-control continuing to spiral to higher levels, the Federal Reserve for too long maintained its stance that rises in inflation were transitory and would quickly subside. To add insult to injury Chairman Powell in testimony during a congressional hearing to confirm his confirmation earlier today for a second term, continued his doctrine that inflationary pressures will ease by the middle of this year.
Economic forecasts for tomorrow’s core CPI index (Consumer Price Index) are expecting that the core CPI, which strips out food and energy costs, will gold from 4.9% in November to 5.4% in December. More alarming is the CPI index which contains data for rising energy and food costs are anticipating that the current level of inflation in December will reach 7% year-over-year, a 0.2% increase from November’s actual numbers of 6.8%.
During his testimony, Powell said that policymakers were still analyzing different approaches to reducing the Federal Reserve balance sheet and said that inflation is “running very far above target and it is a long road to anything close to a restrictive policy.” In other words, the chairman of the Federal Reserve is still riding both sides of the fence, walking a tight rope in which he believes that the Federal Reserve can curtail the spiraling level of inflationary pressures without causing great economic hardship to the recovery from the recession that has lasted almost two years.
The truth of the matter is that the only tool within the Federal Reserve’s toolbox to curtailing the rise in inflation is to raise interest rates, and rising interest rates intrinsically will curtail any economic expansion that is needed for the United States to achieve a full economic recovery.
Just as the Federal Reserve maintained a stance that the levels of inflation were transitory. They are now trying to convince the American public that the U.S. economy can withstand interest rate normalization and Federal Reserve tightening without affecting job growth which has been tepid at best.
The bottom line is that the Federal Reserve got it wrong and incorrectly diagnosed spiraling inflation as a short-term event. With inflationary pressures near a 40 year high, the balancing act to get inflation under control in a relatively short period is an impossible task without slowing the economic expansion that is currently underway.
Analysts and market participants have already factored in the real potential for three or four rate hikes, raising the fed funds rate by ¼%. By Chairman Powell saying that Fed actions “should not have a negative impact on the employment market” is a statement one might expect to hear from PT Barnum and not the chairman of the Federal Reserve. Traders and market participants are acutely aware of the dilemma faced by the Federal Reserve and moved gold substantially higher today, anticipating that inflation will continue to run at these historically high levels for an extended time.
As of 5:17 PM EST gold futures basis, the most active February Comex contract is currently up $22.70, a net gain of 1.2% percent, and is fixed at $1821.50. Our technical studies see the next level of resistance should gold continue to rise at $1828.60, with major resistance occurring between $1851 and $1880.
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Wishing you as always, good trading,