{"id":42266,"date":"2023-09-26T07:57:15","date_gmt":"2023-09-26T14:57:15","guid":{"rendered":"https:\/\/goldco.com\/?p=42266"},"modified":"2024-09-03T19:38:50","modified_gmt":"2024-09-04T02:38:50","slug":"did-the-fed-just-make-a-big-mistake-with-inflation","status":"publish","type":"post","link":"https:\/\/goldco.com\/did-the-fed-just-make-a-big-mistake-with-inflation\/","title":{"rendered":"Did the Fed Just Make a Big Mistake With Inflation?"},"content":{"rendered":"

Last week the Federal Open Market Committee (FOMC) decided to take another pause in hiking interest rates, the second pause so far since it began hiking interest rates months ago. While many in the financial media expected that move, was it the right one?<\/p>\n

Official inflation data show that prices are rising 3.7% year on year, up from 3% just two months ago. Yet the Fed seems to be acting as though that\u2019s not problematic, and that it can continue waiting to see what happens.<\/p>\n

Of course, the last time the Fed was this blas\u00e9 about inflation was when it tried to insist that inflation was merely transitory. And as we all remember, inflation went on to rise to 9% because the Fed didn\u2019t act quickly enough to stop it.<\/p>\n

Will the Fed make the same mistake this time?<\/p>\n

What Is the Fed Thinking?<\/h2>\n

One of the supposed reasons for not thinking that inflation is problematic today is that increases in gasoline prices were supposedly behind much of the latest increase in inflation. Because gas prices can be volatile, these increases are supposedly something that might dissipate over time, and thus aren\u2019t worth getting worked up over.<\/p>\n

On the surface that makes some sense. The inflation figures were from August, which means pre-Labor Day. And gas prices traditionally are higher in the summer as people travel for vacation, then fall later after Labor Day.<\/p>\n

But what if those rising gas prices are really the sign of reawakening inflation? What happens if they remain elevated through September? Indeed, the data shows that gas prices<\/a> last week were higher than their August peak. So did the Fed just make a major miscalculation?<\/p>\n

Money and Inflation<\/h2>\n

Milton Friedman famously said that inflation is always and everywhere a monetary phenomenon. With trillions of dollars pushed into the system in 2020, it was all but certain that inflation was going to become problematic.<\/p>\n

While the Fed has made great strides in reducing the size of its balance sheet since last year, it had to reverse course in March in response to major bank failures. And that temporary about face interrupted the decrease in money supply that was helping to push prices down.<\/p>\n

We\u2019ll find out this afternoon whether the August money stock figures have increased from July\u2019s figures when the Fed publishes its H.6 release<\/a>. But the fact that the Fed has been slowly and consistently decreasing the size of its balance sheet, yet the money supply is climbing and inflation is rising, is more than a little concerning.<\/p>\n

Given that, you would think that the Fed would have chosen to raise rates at last week\u2019s FOMC meeting, to forestall the possibility that inflation may rise further in the future. Or perhaps the Fed thinks the money supply will resume its downward trajectory and that we have nothing to worry about?<\/p>\n

Whatever the reasoning, the Fed is playing with fire here, and is endangering its own credibility. If inflation rises due to the Fed\u2019s continued inaction on rates, it may have to play catch up once again.<\/p>\n

With American households already having been hard hit by inflation once before, few can afford to deal with inflation again. Higher interest rates are impacting household finances and the housing market, causing a lot of pain. But many people have been hoping that the Fed will cut rates at some point soon.<\/p>\n

If inflation continues to rise, however, the Fed will have to either raise rates again or keep interest rates higher for longer, increasing the negative impact of these higher rates. Could the Fed avoid all of this if it just acted as aggressively to bring down inflation as it should have?<\/p>\n

Protecting Yourself Against Inflation<\/h2>\n

It seems clear that Fed policy makers don\u2019t seem to feel an urgent need to combat inflation. They can certainly afford to absorb price increases, even though millions of American households cannot.<\/p>\n

For those Americans hoping the Fed would get it right, that it would guide the economy to a soft landing, or that it would start cutting rates soon, reality seems to be disappointing. We could be in for a much longer period of high interest rates than anyone previously expected.<\/p>\n

That makes it all the more important to try to protect yourself against the consequences of inflation. With the Fed vacillating between getting tough on inflation and doing nothing about it, can you afford to allow your hard-earned assets to remain at risk as a result of the Fed\u2019s indecision?<\/p>\n

Many Americans have already started taking steps to try to protect their assets against inflation, and they’re doing it by buying gold. Gold has a reputation for being a hedge against inflation over the long run.<\/p>\n

During the 1970s stagflation, for instance, gold\u2019s performance was particularly impressive, with gold posting an annualized rate of growth of over 30% each year over the course of the decade, far in excess of the double digit inflation that the 1970s saw. If gold were to repeat a similar performance against inflation today, or even half that rate of growth, it would be nothing short of phenomenal.<\/p>\n

That\u2019s what many people buying gold today undoubtedly expect will happen. We saw a glimmer of it in 2008, as the gold price gained 25% during the same period that markets lost more than 50% (October 2007 to March 2009). The history is there, now people are just hoping that it will repeat itself.<\/p>\n

But the gold market has developed even since 2008, especially with the growing popularity of gold IRAs<\/a>. Gold IRAs allow you to roll over assets tax-free from a 401(k), 403(b), TSP, IRA, or similar retirement account into a self-directed IRA that can then buy and own physical gold coins or bars.<\/p>\n

With a gold IRA, you maintain all the same tax advantages as any other IRA account while gaining the benefits of owning gold. And the process of starting a gold IRA and rolling over funds to start buying gold is just as easy as any other rollover.<\/p>\n

Goldco has helped thousands of customers benefit from owning gold over the years, many of whom have started gold IRAs. With over $2 billion in precious metals placements and over 5,000 5-star reviews<\/a>, we pride ourselves on quality products and exemplary customer service.<\/p>\n

If you\u2019re worried about protecting your wealth against inflation, recession, or other financial misfortune, call Goldco today to find out more about how a gold IRA can help you protect your dreams of a prosperous future.<\/p>\n","protected":false},"excerpt":{"rendered":"

Last week the Federal Open Market Committee (FOMC) decided to take another pause in hiking interest rates, the second pause so far since it began hiking interest rates months ago. While many in the financial media expected that move, was it the right one? 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