Inflation is the word of the day.
We’ve been talking about inflation for months, but now the mainstream is starting to pay attention to rising prices. In corporate board rooms, board members are talking about passing along their increased costs to their customers. Consumers are trying to tighten budgets. But the Federal Reserve keeps telling us there isn’t a problem. Inflation – so we’re told – is transitory. In his podcast, Peter Schiff said the central bankers at the Fed have to tell us that because they can’t be honest about inflation.
The ISM Services Index prices paid component reveals just how much prices are going up. The ISM’s price gauge rose to a 13-year peak and came in twice as high as the last month before the pandemic began. But the central bankers at the Federal Reserve continue to insist the price increases are transitory. Peter called their position absurd.
To simply dismiss what is happening as being transitory strains any credibility. It makes no sense for the Fed to be taking this position unless you actually understand why they’re doing it.”
When it comes to inflation, the Fed basically has two options. It can admit it’s a problem and take steps to address it, or it can pretend there isn’t a problem so it doesn’t have to do anything about it. If the central bankers admit inflation is a problem, it puts the onus on them to take action. That would mean tightening monetary policy – hiking rates, ending quantitative easing, and shrinking the balance sheet.
And therein lies the problem.
They can’t simultaneously prop up the economy...