Pressure on the Fed

A bit of air came out of the market this week, and as inflation rates rise, there will be more pressure on the Fed to start to reduce money printing by reducing the Fed’s bond buying binge. Another pressure point on the Fed may be the enormous increase in reverse repo markets that are approaching $2 trillion. That money can’t be put to work in the real economy because interest rates are too low for banks to make loans. The market has also no doubt taken note that the $3+ trillion the Democrats want to helicopter into the economy may be in jeopardy because a couple of middle-of-the-road Democrat senators are reluctant to go along with the Marxist-leaning Democrat Party and all 50 members of that party have to vote in favor of it before the Vice President can cast her tie-breaking vote.

So this week we saw some headwinds against the process of Fed making the rich richer by pumping money into financial markets. And those headwinds may not die down any time soon if Peter Boockvar is correct in his assertion that we are heading into a 1970s’ type inflationary event. Here is what Peter wrote for his clients on Friday, September 10, following the latest inflation numbers: “Headline PPI in August rose 0.7% m/o/m and 0.6% core. The core rate was as expected while the headline was one tenth more. Versus last year, headline PPI is up 8.3% and by 6.7% ex food and energy. Core goods price rose 0.6% m/o/m after 4 straight months of 1% increases and an 0.8% rise in March. Thus the annualized rate of PPI gain for core goods over the past 6 months is 10.8%. Services prices were up 0.7% m/o/m and rising at an 8.4% annualized rate over the past 6 months. We all know about the skyrocketing costs of shipping goods and we saw a 2.8% m/o/m increase in the ‘transportation and warehousing’ category after a 2.7% spike in July. This is running at a 25% annualized pace over the past half year. Inflation in the pipeline is still pretty robust. For processed goods, core prices rose 1.3% m/o/m and are up 26% annualized over the past 6 months. Unprocessed core goods prices were flat for the 2nd month but are still up 28% over the past 6 months annualized. Bottom line, these are 1970s’ type inflation readings and while the time periods are obviously different in many ways, it confirms again that we have the most intense inflation pressures since then. As the market will focus more on Tuesday’s CPI and the figures today were about as forecasted, bond yields are little changed in response, while higher on the day. Quietly inflation expectations are rising again with the 5 yr breakeven up for the 4th straight day to 2.61%, matching the highest since the end of July.

Now I know I will get some kickback from deflationists out there who fail to take into account that the U.S. Empire is rapidly heading south. I understand debt dynamics and why during international perils in the past the dollar has always become stronger. But debtor nations soon bite the dust while creditor nations like China and Russia become ascending powers. The emasculation of the American military in Afghanistan as well as its destruction through a Woke culture that is being forced on the military by the Biden Administration is telling the world the U.S. is not to be taken seriously any longer. The dollar has long been propped by our military. Those days are soon to end and when that takes place a currency reset will change dollar debt deflation dynamics that have been in play since 1971. 

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.