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The Inflation Reduction Act is a 'tax-and-spend package' that won't reduce inflation; investors should diversify into 'real' assets

Kitco News

As U.S. inflation remains high at 8.5 percent in July, Phil Magness, Research and Education Director at the American Institute for Economic Research, called the Inflation Reduction Act “just a tax-and-spend package,” arguing it wouldn’t reduce inflation.

“[The Inflation Reduction Act] is another exercise in Orwellian language,” said Magness. “They’re redefining terms… [it’s] just a tax-and-spend package.”

President Biden is expected to sign the act into law tomorrow. The act includes $430 billion in new spending, with more than $300 billion allocated to climate-related programs. The bill also tightens tax loopholes on the wealthiest Americans and allocates more funding to the Internal Revenue Service.

Michael Ashton, Managing Principal at Enduring Investment LLC, said that during times of high inflation, investors should diversify away from stock markets, and hold “real things” such as farmland, commodities, and precious metals.

“Diversify away from stocks,” said Ashton. “They don’t do well in inflationary periods… Most importantly, broaden your exposure to real things like land.”

Magness and Ashton spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News.

Peak Inflation?

Both Magness and Ashton agreed that the U.S. had not seen the end of inflation, despite a slight decrease in year-on-year CPI inflation in July.

“[Analysts] are reading one month of numbers, that have shown inflation flatlining, overly optimistically without addressing a deeper structural issue that comes from more than a year, possibly even up to a decade, of Federal Reserve mismanagement,” said Magness. “The Fed is still playing catch-up for policies they should have considered as much as a year ago.”

In particular, Magness chided the Fed for failing to raise rates and engage in tighter monetary policy.

Ashton agreed with Magness’s assessment.

“We’ve had money supply go up 40 to 50 percent, and prices only 15 percent, so there’s a lot of catching up to do,” said Ashton. “Our forecast is for inflation this year to come in the mid-sixes, but to stay in the mid-fives for 2023… While the market seems to think that inflation is rapidly going to crash back down to two-and-a-half percent, it’s going to be disappointed.”

Zero Percent Inflation?

When CPI figures were released on Wednesday, President Joe Biden held a press conference, proclaiming “zero percent” inflation in July, despite year-on-year inflation rising by 8.5 percent. Biden was referring to month-over-month inflation, which was 0 percent in July.

“This White House is intent on wordsmithing its way around economic problems,” Magness explained. “What we saw in the CPI numbers was actually just an offset. Fuel, for example, dropped very rapidly over the last month. At the same time, food and some services and other sectors of what’s measured in CPI continued to rise.”

According to the Bureau of Labor Statistics, energy prices fell by 7.6 percent from June to July, while grocery bills increased by 1.4 percent.

Commenting on Biden’s remarks, Ashton said, “If your team hasn’t won a game all season, then you take scoring anything to be a positive. I think that’s sort of what’s happening here. We got a zero in the headline number… I would not expect anything more of a politician than to focus on the one part of [CPI] that makes him look the best.”

To find out which assets can best hedge against inflation, watch the video above.

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