Jerome Powell keeps saying, "inflation expectations are well anchored". This "well anchored" makes it sound like they can't easily change.
The reality is people expect inflation about like the current inflation. As seen in the graph below, if the CPI (green line) goes up, as it has the last 4 months, people's expectations goes up too (blue line). For Powell to think it it safe to print money because people are not expecting much inflation at this moment is foolish. People's expectations can change in a month but the "long and variable delays" from policy change to inflation change can take years.
Inflation can get into positive feedback loops that are very hard or impossible to control. The central banker needs to take a long term view, because inflation responds so slowly to their policy changes. It is irresponsible to make decisions about money creation based on a short term and fickle measure like people's expectations.
The reality is that people's expectations are never "well anchored". If we get CPI numbers of 6% or 7% then inflation expectations will move to that range also. Maybe then Powell will stop saying, "inflation expectations are well anchored".
With inflation expectations rising, then I would assume a combination of rising rates, raising taxes and tappering QE will be needed to combat this impending issue?
ReplyDeleteDoes it make sense to hold gold and real estate (lock in 10 year fixed rates at 2.5-3%)? Buy defensive stocks and sell bonds/reduce cash?
If you could lock in 2.5% for 30 years and buy real estate, in a low tax location, my guess is you would do well. Several smart people have said this is a good time to own gold, seems reasonable.
DeleteThanks, I'll be following the yield curve inversion and US 10 year treasury rates closely to see if there will be a valuation reset in the near future.
DeletePlanning to leverage HELOC and ultrapro etf during the next bear market correction. Will also switch to a 50/50 TLT and LQD / VTI strategy to weather the next drop to ensure assets are protected.
Seems like a mix of real estate, gold, and corporate bonds & dividend blue chips with a healthy amount of leverage will help to setup the leg of wealth accumulation. As households and gov't deliverables and currency continue to devalue along with a greater rate of inflation
ReplyDeleteGovernments attempt to deleverage*
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