Has the Fed Tamed Inflation?

FOMC Chairman Powell answers a reporter’s question at the press conference. June 13, 2018.

Many market participants are heralding the death of inflation, but Peter Schiff isn’t so sure. Schiffgold.com explains:

The October CPI came in lower than expected, sparking a rally in stocks, bonds, and gold. Cooling prices reinforced the belief that the Federal Reserve won the inflation fight and the rate hiking cycle is over. In his podcast, Peter Schiff explained why the demise of inflation is greatly exaggerated.

The consensus was for a 0.1% increase in prices last month. The actual number was flat at zero. Peter wasn’t impressed.

It’s one month. Who cares? And it’s a government index, so it’s meaningless anyway.”

The annual rise in CPI was 3.1%, slightly below the 3.2% projection. Core inflation also came in just a tick below expectations. Peter reiterated that this hardly seems like a cause for celebration. Nevertheless, Wall Street reacted with glee, sparking an immediate rally.

As a result of these numbers, which were almost exactly what everybody thought they were going to be, the expectations for a rate hike have plunged. And the expectations for 2024 rate cuts have moved up quite a bit. So, as a result of this supposedly great news on inflation, the markets believe the Fed is pretty much done, that the war on inflation has been won, the Fed has been victorious, and now it can start taking its troops off the battlefield by cutting rates.”

Peter said the markets are “completely wrong.” He noted that core CPI remains double the Fed target of 2%, and he said there is nothing indicating we’re heading toward two.

Just because we’re at four now doesn’t mean we’re going to two. We could just as easily double and go back up to eight. There’s no reason to just conclude that that’s where we’re headed. But even at four, we’re still way above the Fed’s target of 2%.”

It’s important to remember that even if prices are rising more slowly, they continue to rise.

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